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Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

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  • Börgers, Tilman
  • Cox, Ingemar
  • Pesendorfer, Martin
  • Petricek, Vaclav

Abstract

This paper presents a game theoretic analysis of the generalized second price auc- tion that the company Overture operated in 2004 to sell sponsored search listings on its search engine. We present results that indicate that this auction has a multi- plicity of Nash equilibria. We also show that weak dominance arguments do not in general select a unique Nash equilibrium. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer some preliminary conclu- sions about advertisers’ true willingness to bid for sponsored search listings. We find that advertisers’ true willingness to bid is multi-dimensional and decreasing in listing position.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29125.

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Date of creation: Sep 2008
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Handle: RePEc:pra:mprapa:29125

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Keywords: auctions; sponsored search.;

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References

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  1. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  2. Paul Milgrom, . "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Working Papers 98002, Stanford University, Department of Economics.
  3. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  4. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
  5. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005. "Contests for Status," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
  7. Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January.
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Cited by:
  1. Susan Athey & Glenn Ellison, 2007. "Position Auctions with Consumer Search," Levine's Bibliography 122247000000001633, UCLA Department of Economics.
  2. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
  3. Yi Zhu & Kenneth C. Wilbur, 2008. "Strategic Bidding in Hybrid CPC/CPM Auctions," Working Papers 08-25, NET Institute, revised Oct 2008.
  4. Deb, Rahul, 2008. "Optimal Contracting Of New Experience Goods," MPRA Paper 9880, University Library of Munich, Germany.

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