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Common Agency and Coordinated Bids in Sponsored Search Auctions

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Francesco Decarolis & Maris Goldmanis & Antonio Penta, 2013. "Common Agency and Coordinated Bids in Sponsored Search Auctions," Working Papers 13-19, NET Institute.
  • Handle: RePEc:net:wpaper:1319
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    File URL: http://www.netinst.org/Decarolis_Goldmanis_13-19.pdf
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    References listed on IDEAS

    as
    1. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers) 717, Bank of Italy, Economic Research and International Relations Area.
    2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    Cited by:

    1. Francesco Decarolis & Maris Goldmanis & Antonio Penta, 2017. "Marketing Agencies and Collusive Bidding in Online Ad Auctions," NBER Working Papers 23962, National Bureau of Economic Research, Inc.
    2. Elena Krasnokutskaya, 2016. "Trading across Borders in Online Auctions," 2016 Meeting Papers 1537, Society for Economic Dynamics.

    More about this item

    Keywords

    Online Advertising; Internet Auctions; Common Agency;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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