IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/29125.html
   My bibliography  Save this paper

Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/29125/1/MPRA_paper_29125.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    2. 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.
    3. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 338-363.
    4. Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January.
    5. 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.
    6. 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.
    7. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    8. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    2. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 541-571.
    3. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    4. Haluk Ergin & Tayfun Sönmez & M. Utku Ünver, 2020. "Efficient and Incentive‐Compatible Liver Exchange," Econometrica, Econometric Society, vol. 88(3), pages 965-1005, May.
    5. Thomas Blake & Chris Nosko & Steven Tadelis, 2015. "Consumer Heterogeneity and Paid Search Effectiveness: A Large‐Scale Field Experiment," Econometrica, Econometric Society, vol. 83, pages 155-174, January.
    6. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages 368-395, November.
    7. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 213-243, September.
    8. Burguet, Roberto & Caminal, Ramon & Ellman, Matthew, 2015. "In Google we trust?," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 44-55.
    9. Ken Heyer & Carl Shapiro & Jeffrey Wilder, 2009. "The Year in Review: Economics at the Antitrust Division, 2008–2009," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(4), pages 349-367, December.
    10. Pollock, Rufus, 2008. "Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search," MPRA Paper 8885, University Library of Munich, Germany.
    11. Susan Athey & Michael Luca, 2019. "Economists (and Economics) in Tech Companies," Journal of Economic Perspectives, American Economic Association, vol. 33(1), pages 209-230, Winter.
    12. Emanuele Tarantino, 2012. "A Note on Vertical Search Engines’ Foreclosure," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 8, Edward Elgar Publishing.
    13. Alexandre Cornière & Greg Taylor, 2014. "Integration and search engine bias," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 576-597, September.
    14. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
    15. 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.
    16. R. McAfee, 2011. "The Design of Advertising Exchanges," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(3), pages 169-185, November.
    17. Lianos, I. & Motchenkova, E., 2012. "Market dominance and quality of search results in the search engine market," Discussion Paper 2012-036, Tilburg University, Tilburg Law and Economic Center.
    18. Alexander Teytelboym & Shengwu Li & Scott Duke Kominers & Mohammad Akbarpour & Piotr Dworczak, 2021. "Discovering Auctions: Contributions of Paul Milgrom and Robert Wilson," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 709-750, July.
    19. Thompson, David R.M. & Leyton-Brown, Kevin, 2017. "Computational analysis of perfect-information position auctions," Games and Economic Behavior, Elsevier, vol. 102(C), pages 583-623.
    20. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.

    More about this item

    Keywords

    auctions; sponsored search.;

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:29125. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.