We study the Generalized Second Price auctions—a standard method for allocating online search advertising—experimentally, considering both the static environment assumed by the prevailing theory and a dynamic game capturing the salient aspects of real-world search advertising auctions. Subjects of our experiment bid consistently with the leading equilibrium notions, but exhibit significant over...

Generalized Second Price Auction and its variants has been the main mechanism used by search companies to auction positions for sponsored search links. In this paper we study the social welfare of the Nash equilibria of this game. It is known that socially optimal Nash equilibria exists, and its not hard to see that in the general case there are also very bad equilibria: the gap between a Nash ...

The sponsored search auction problem was introduced briefly as an example in Chapter 1. In this chapter, we study this problem in more detail to illustrate a compelling application of mechanism design. We first describe a framework to model this problem as a mechanism design problem under a reasonable set of assumptions. Using this framework, we describe three well known mechanisms for sponsore...

An important decision for a firm is how to allocate its advertising budget among different types of advertising. Most traditional channels of advertising, such as advertising on television and in print, serve the purpose of building consumer awareness and desire about the firm’s products. With recent developments in technology, sponsored search (or paid search) advertising at search engines in ...

This paper aims to explore the effects of organic listing as a competing information source on the advertising competition (i.e., sponsored bidding) and the outcome performances in search advertising. We set up a game-theoretic model in which firms bid for sponsored advertising slots and compete for consumers in the product market. Firms are asymmetrically differentiated in terms of market pref...