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Real Life Applications of VCG Auctions and GSP Auctions

https://www.fool.com/investing/general/2015/09/27/facebooks-ad-system-is-based-on-a-decades-old-econ.aspx

I found this article interesting because it was an extension of the applications of the Vickrey-Clarke-Groves and Generalized Second Price Auctions.  Specifically, it discusses Facebook, Google, and Twitter’s uses of the two systems and what the impacts and implications of that are.  This article goes more in depth about the company specifics than we did in class.

First, the article describes the VCG and GSP auctions.  Facebook uses the VCG auction while Google and Twitter use the GSP auction in order to sell ads.  The article goes on to discuss the benefits of VCG auctions and the drawbacks of the GSP auction.  The article states that the major problem with the GSP auction is the ability to “game” the system, where bidders raise and lower the prices in order to determine what’s going to get them the greatest profit.  It goes on to content that this is bad for long-term profits for the shareholders due to the instability it creates.  It goes on to discuss how not only does VCG provide the needed stability but it also ensures that the content that does appear to the user is more applicable to them, which, in turn, further increases profits because users are more likely to click ads that are relevant to them.  Overall, this article provides an interesting analysis of the procedures we discussed in class in real-world situations.

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