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Optimal Quality Scores in Sponsored Search Auctions: Full Extraction of Advertisers' Surplus

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  • Yoon Kiho

    (Korea University, kiho@korea.ac.kr)

Abstract

This paper shows that the quality scores in sponsored search auctions can be optimally chosen to extract all the advertisers' surplus. The reason for the full extraction result is that the quality scores may effectively set all the bidders' valuations equal to the highest valuation, which induces intense bidding competition.

Suggested Citation

  • Yoon Kiho, 2010. "Optimal Quality Scores in Sponsored Search Auctions: Full Extraction of Advertisers' Surplus," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-11, July.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:28
    DOI: 10.2202/1935-1704.1649
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    References listed on IDEAS

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    1. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    2. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    3. Evans David S., 2008. "The Economics of the Online Advertising Industry," Review of Network Economics, De Gruyter, vol. 7(3), pages 1-33, September.
    4. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
    5. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    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. David S. Evans, 2009. "The Online Advertising Industry: Economics, Evolution, and Privacy," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 37-60, Summer.
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    More about this item

    Keywords

    online advertising; sponsored search; quality score; full extraction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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