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Equilibrium bids in sponsored search auctions: theory and evidence

Author

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

Abstract

This paper presents a game theoretic analysis of the generalized second-price auction that the company Overture operated in 2004 to sell sponsored search listings on search engines. We construct a model that embodies few prior assumptions about parameters, and we present results that indicate that this model has under quite general assumptions a multiplicity of Nash equilibria. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer preliminary conclusions 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

Suggested Citation

  • Borgers, Tilman & Cox, Ingemar & Pesendorfer, Martin & Petricek, Vaclav, 2013. "Equilibrium bids in sponsored search auctions: theory and evidence," LSE Research Online Documents on Economics 46841, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:46841
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    File URL: https://researchonline.lse.ac.uk/id/eprint/46841/
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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