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Common Agency and Coordinated Bids in Sponsored Search Auctions

  • Maris Goldmanis

    (Royal Holloway, University of London)

  • Antonio Penta

    (University of Wisconsin, Madison)

  • Francesco Decarolis

    (University of Wisconsin 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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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 106.

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Date of creation: 2012
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Handle: RePEc:red:sed012:106
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  1. Gian Luigi Albano & Milo Bianchi & Giancarlo Spagnolo, 2006. "Bid Average Methods in Procurement," Rivista di Politica Economica, SIPI Spa, vol. 96(1), pages 41-62, January-F.
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
  3. 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.
  4. 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.
  5. Rieko Ishii, 2008. "Collusion in Repeated Procurement Auction: A Study of a Paving Market in Japan," ISER Discussion Paper 0710, Institute of Social and Economic Research, Osaka University.
  6. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
  7. Francesco Decarolis, 2009. "When the Highest Bidder Loses the Auction: Theory and Evidence from Public Procurement," 2009 Meeting Papers 130, Society for Economic Dynamics.
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