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Optimal Allocation Mechanisms When Bidders Ranking for the objects is common

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  • Juan Feng

Abstract

Search engines commonly use “sponsored links†, where certain advertisers’ links are promoted to be placed above others in return for monetary payment. It is natural to assume that all providers value a higher ranked placement more than lower ranked ones. Then how should the seller optimally sell these ranked slots is critical for the search engines. In this paper we study the seller’s (search engine) optimal selling mechanism in the following setting: buyers (advertisers), each of whom has unit demand, compete for positions o ered by the seller. While each buyer’s valuation for each position is private and independent, the ranking for these positions is common among all the buyers. However the rate at which these valuations change might be di erent. We begin with 4 simplified scenarios specifying how buyers valuations change for di erent positions, namely,“parallel†, “convergent†, “divergent†, and “convergent then divergent†. We find that the optimal incentive compatible allocation mechanism is quite di erent in determining the “pivot†types and the order to fill in the positions. Under some conditions, these mechanisms are even ecient in terms of maximizing the total welfare of the auctioneer and bidders. When the buyers’ valuations for lower positions decrease at di erent rates, the seller earns more than the case of simple second-price sequential auction

Suggested Citation

  • Juan Feng, 2004. "Optimal Allocation Mechanisms When Bidders Ranking for the objects is common," Econometric Society 2004 North American Summer Meetings 545, Econometric Society.
  • Handle: RePEc:ecm:nasm04:545
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    File URL: http://repec.org/esNASM04/up.27227.1075586911.pdf
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    References listed on IDEAS

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    1. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-483, March.
    2. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
    3. Menezes, Flavio M & Monteiro, Paulo Klinger, 1998. "Simultaneous Pooled Auctions," The Journal of Real Estate Finance and Economics, Springer, vol. 17(3), pages 219-232, November.
    4. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882.
    5. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
    6. Paul Resnick & Christopher Avery & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June.
    7. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-438, March.
    8. Partha Dasgupta & Eric Maskin, 2000. "Efficient Auctions," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 341-388.
    9. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
    10. Mark Armstrong, 2000. "Optimal Multi-Object Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 455-481.
    11. Christopher Avery & Terrence Hendershott, 2000. "Bundling and Optimal Auctions of Multiple Products," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 483-497.
    12. Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
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    More about this item

    Keywords

    optimal auction; mechanism design; heterogeneous objects; ranking;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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