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To Bid or Not to Bid? Entry, Bid Shading, and Bias in Sponsored Search Auctions

Author

Listed:
  • Mauring, Eeva
  • Parakhonyak, Anastasiia
  • Williams, Cole

Abstract

We study participation in sponsored-search auctions when sellers can also appear as organic results. Under the platform’s ex post revenue-maximizing display rule, organic placement acts as an endogenous outside option: the best-matched sellers shade their bids and entry into bidding remains incomplete. The platform gains by committing to show more sponsored results than is ex post optimal, degrading match quality. Empirically, using Amazon search data and a Gini-based measure of query breadth, we confirm the model’s predictions: narrower queries receive fewer sponsored results, and sponsored results are worse matched than organic ones, especially for narrow queries.

Suggested Citation

  • Mauring, Eeva & Parakhonyak, Anastasiia & Williams, Cole, 2026. "To Bid or Not to Bid? Entry, Bid Shading, and Bias in Sponsored Search Auctions," CEPR Discussion Papers 21754, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21754
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    File URL: https://cepr.org/publications/DP21754
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    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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