Skip to main content



A Structural Model of Sponsored Search Advertising Auctions

Unlike many models of search advertising auctions which assume an auction occurs for every single user query and that bids are customized for each query, Susan Athey and Denis Nekipelov develop a model that accounts for queries arriving faster than advertisers are able to change their bids in their working paper A Structural Model of Structured Search Advertising Auctions. Using data from 3 months of Microsoft’s search advertising auctions, Athey and Nekipelov find that in the current Generalized Second Price auction model, current search ads are vastly underpriced–with estimated bidder values between 40-90% higher than their CPC. Furthermore, the paper shows that bidders are incentivized to shade their true valuations by reducing their bid prices. Although the effect of this inefficiency is relatively small, Athey and Nekipelov posit that a Vickrey auction would eliminate it entirely but have an ambiguous effect on revenues. Finally, cognizant of some potential transaction costs in the transition, they find that there could be significant revenue benefits if sellers were to adopt a slightly less efficient quality scoring algorithm.

Although the paper is somewhat difficult and beyond the scope of the class, its results and findings directly relate to our study of GSP and VCG search auction theory.

http://emlab.berkeley.edu/~nekipelov/pdf_papers/paper16.pdf

Comments

Leave a Reply

Blogging Calendar

November 2012
M T W T F S S
 1234
567891011
12131415161718
19202122232425
2627282930  

Archives