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Google’s Ad Auctions

Ads – the bane of our existence when it interrupts our videos and takes up precious window space. And yet, as much as advertisements come as an inconvenience to consumers, it is the reason why so many things on the internet is freely accessible. I thought it would be interesting to delve further into a topic that was briefly mentioned in class: the use of auctions for ads that display atop Google’s search result page. Google is decently transparent about their ad auction system, at least much as they can be without divulging business secrets (more details can be found about the auction from the company itself at The company runs an automated auction in a fraction of a second, and considers a variety of factors such as how much the advertiser pays and where the ad ranks against competitors. This advertising business is no small feat, as the estimated profit returns in 2017 was $79 billion.

This article clearly connects to the class topic of auctions. Of the four types discussed in class, it was interesting to see that the technology giant opted to use the second-price auction type. Not only that, Google openly participates in its own auctions. For example, doing a search for smartphones will actually return results with Google’s pixel phone in the top slots, followed by Samsung and Apple phones. This concept begs the question of what the optimal strategy for companies ought to be, as we discovered that running auctions with sealed bid versus open bid have different strategies. Nevertheless, the company boasts that its “system has been set up so that advertisers who compete with house ads in auctions pay as if the house ad were not participating in the auction.” As for now, this system seems to be working, but it would interesting to see the developments in this field in the future.


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October 2019