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An experimental study of the generalized second price auction

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  • Bae, Jinsoo
  • Kagel, John H.

Abstract

We experimentally investigate the Generalized Second Price (GSP) auction used to sell advertising positions in online search engines. Two contrasting click through rates (CTRs) are studied, under both static complete and dynamic incomplete information settings. Subjects consistently bid above the Vikrey–Clarke–Grove's (VCG) like equilibrium favored in the theoretical literature. However, bidding, at least qualitatively, satisfies the contrasting outcomes predicted under the two CTRs. For both CTRs, outcomes under the static complete information environment are similar to those in later rounds of the dynamic incomplete information environment. This supports the theoretical literature that uses the static complete information model as an approximation to the dynamic incomplete information under which advertising positions are allocated in field settings.

Suggested Citation

  • Bae, Jinsoo & Kagel, John H., 2019. "An experimental study of the generalized second price auction," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 44-68.
  • Handle: RePEc:eee:indorg:v:63:y:2019:i:c:p:44-68
    DOI: 10.1016/j.ijindorg.2018.10.006
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    More about this item

    Keywords

    Online advertising; Sponsored search auctions; Generalized second price auction;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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