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Common Agency and Coordinated Bids in Sponsored Search Auctions

  • Francesco Decarolis

    ()

    (Department of Economics and Hariri Institute, Boston University)

  • Maris Goldmanis

    ()

    (Department of Economics, Royal Holloway, University of London)

  • Antonio Penta

    ()

    (Department of Economics, University of Wisconsin at Madison)

As auctions are becoming the main mechanism for selling advertisement space on the web, marketing agencies specialized in bidding in online auctions are proliferating. We analyze theoretically how bidding delegation to a common marketing agency can undermine both revenues and efficiency of the generalized second price auction, the format used by Google and Microsoft-Yahoo!. Our characterization allows us to quantify the revenue losses relative to both the case of full competition and the case of agency bidding under an alternative auction format (specifically, the VCG mechanism). We propose a simple algorithm that a search engine can use to reduce efficiency and revenue losses.

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File URL: http://www.netinst.org/Decarolis_Goldmanis_13-19.pdf
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Paper provided by NET Institute in its series Working Papers with number 13-19.

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Length: 18 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:net:wpaper:1319
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Rieko Ishii, 2007. "Collusion in Repeated Procurement Auction: a Study of Paving Market in Japan," Discussion Papers in Economics and Business 07-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
  3. Francesco Decarolis, 2009. "When the Highest Bidder Loses the Auction: Theory and Evidence from Public Procurement," 2009 Meeting Papers 130, Society for Economic Dynamics.
  4. Spagnolo, Giancarlo & Albano, Gian Luigi & Bianchi, Milo, 2006. "Bid avarage methods in Procurement," MPRA Paper 8997, University Library of Munich, Germany.
  5. Decio Coviello & Mario Mariniello, 2010. "The Role of Publicity Requirements on Entry and Auctions Outcomes," CEIS Research Paper 180, Tor Vergata University, CEIS, revised 21 Dec 2010.
  6. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
  7. Francesco Decarolis, 2012. "Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D," PIER Working Paper Archive 12-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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