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Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

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

This paper presents a game theoretic analysis of the generalized second price auc- tion that the company Overture operated in 2004 to sell sponsored search listings on its search engine. We present results that indicate that this auction has a multi- plicity of Nash equilibria. We also show that weak dominance arguments do not in general select a unique Nash equilibrium. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer some preliminary conclu- sions 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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29125.

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Date of creation: Sep 2008
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Handle: RePEc:pra:mprapa:29125
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  1. Paul Milgrom, 2000. "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 245-272, April.
  2. Jehiel, Philippe & Moldovanu, Benny, 2006. "Allocative and Informational Externalities in Auctions and Related Mechanisms," CEPR Discussion Papers 5558, C.E.P.R. Discussion Papers.
  3. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
  4. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  5. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, vol. 115, pages 338-363.
  6. Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January.
  7. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
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  1. Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence (AEJ:MI 2013) in ReplicationWiki

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