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Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

Author

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

Abstract

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.

Suggested Citation

  • Börgers, Tilman & Cox, Ingemar & Pesendorfer, Martin & Petricek, Vaclav, 2008. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," MPRA Paper 29125, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29125
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Renato Gomes, 2014. "Optimal auction design in two-sided markets," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 248-272, June.
    2. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    3. Yi Zhu & Kenneth C. Wilbur, 2011. "Hybrid Advertising Auctions," Marketing Science, INFORMS, vol. 30(2), pages 249-273, 03-04.
    4. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
    5. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1213-1270.
    6. McLaughlin, Kevin & Friedman, Daniel, 2016. "Online ad auctions: An experiment," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2016-501, Social Science Research Center Berlin (WZB).
    7. Gomes, Renato & Sweeney, Kane, 2014. "Bayes–Nash equilibria of the generalized second-price auction," Games and Economic Behavior, Elsevier, vol. 86(C), pages 421-437.
    8. Emmanuel LORENZON, 2016. "Collusion with a Greedy Center in Position Auctions," Cahiers du GREThA 2016-08, Groupe de Recherche en Economie Théorique et Appliquée.
    9. Yi Zhu & Kenneth C. Wilbur, 2008. "Strategic Bidding in Hybrid CPC/CPM Auctions," Working Papers 08-25, NET Institute, revised Oct 2008.
    10. Anindya Ghose & Sha Yang, 2009. "An Empirical Analysis of Search Engine Advertising: Sponsored Search in Electronic Markets," Management Science, INFORMS, vol. 55(10), pages 1605-1622, October.
    11. Смирнов А.С., 2015. "Рынки Контекстной Рекламы: Подходы И Теоретические Модели," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(4), pages 14-24, октябрь.
    12. Kenneth C. Wilbur & Yi Zhu, 2009. "Click Fraud," Marketing Science, INFORMS, vol. 28(2), pages 293-308, 03-04.
    13. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    14. Deb, Rahul, 2008. "Optimal Contracting Of New Experience Goods," MPRA Paper 9880, University Library of Munich, Germany.
    15. Che, Yeon-Koo & Choi, Syngjoo & Kim, Jinwoo, 2017. "An experimental study of sponsored-search auctions," Games and Economic Behavior, Elsevier, vol. 102(C), pages 20-43.
    16. Davydov, D. & Izmalkov, S. & Smirnov, A., 2015. "Sponsored-Search Auctions: Empirical and Experimental Works," Journal of the New Economic Association, New Economic Association, vol. 28(4), pages 56-73.
    17. Hummel, Patrick, 2016. "Position auctions with dynamic resizing," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 38-46.

    More about this item

    Keywords

    auctions; sponsored search.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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