How Google’s Ad Auctions Work
https://www.wsj.com/articles/how-googles-ad-auctions-work-1484827203
Being that Google is the most utilized search engine in the world, advertisers are bound to want to advertise their products to users whenever they search something on googles search bar. In this article “How Google’s Ad Auctions Work”, a brief and simplified explanation of the auction that is used to decide prices for advertisements is given. Google uses a second-price auction mechanism, but what Google does is that they frequently bid against their customers for spots atop the search results, resulting in almost a win for Google most times. Google does not want to affect the prices of customers, so they often exclude their bid when setting the prices of other advertisers in an auction.
What the article touches on is that Google uses secret formula to get these prices for auctions, but in reality, what we learned in class is that Google uses a modified version of the VCG Procedure. We learned that in this procedure, they will ask the advertiser to announce their values, then they will create a matching that maximizes total valuation, then they will charge each advertiser the VCG prices. In this case the advertiser is charged the harm that taking the assigned slot from the other advertiser is. We proved the claim that advertisers have a dominant strategy bidding truthfully when it comes to a VCG procedure.