Managing Heterogeneity in Search-advertisers' Objectives

Utilization of search engines services is embedded in many people's daily activities. However, consumers do not pay for these services, they are financed through sponsored search. The prevailing Generalized Second Price (GSP) auction mechanism, which is used by search engine service providers to allocate advertising slots to advertisers, who bid on keywords, only charges advertisers for clicks on their ads. Advertisers who seek exposure and do not want consumers to click on their ads, can manipulate search engines by designing ad content with low click through rates that accumulate free exposures. This research-in-progress paper presents the motivation behind devising a sponsored search auction pricing mechanism that curtails advertisers' exploitation of search engines, resulting in a better experience for consumers. The paper analyzes the attributes of sponsored search and shows that the indirect payments by consumers do not necessarily lead to market failure, as opposed to other situations where advertisers sponsor information goods such as national commercial television broadcasting.