Googles Advertisement Auction Strategy A Study on Second

Google’s Advertisement Auction Strategy A Study on Second Price Auction Junyuan Ke

Generalized Second Price Auction (GSP)

Google’s Advertisement Strategy • 81% of Ad revenue derive from online network • Ad Sense vs. Google search Ad Word, 30+ billion revenue

In relation to First Price Auction • Problem with First Price Auction: • (first price sealed-bid auctions) • Unstable • Generally no pure-strategy equilibrium, bids can be adjusted dynamically Benjamin Edelman, Michael Ostrovsky. “Strategic bidder behavior in sponsored search auctions”.

Introduction to GSP • GSP: Generalized second price auction • Removes incentives for this behavior • Improves stability • Truthful for one item

GSP with one item • Truth Telling in Second Price Auction is the dominant strategy https: //www. youtube. com/watch? v=5 Yz. VBa. NEIz 0

Truth Telling in GSP when only 1 item Truth Telling in Second Price Auction is the dominant strategy https: //www. youtube. com/watch? v=5 Yz. VBa. NEIz 0

GSP Concepts •

Problems with GSP • Non-truthfulness • Lack of Transparency: Price Manipulation

Why does Google choose GSP easier for advertisers to understand. 2) The switching cost might be too high. There would very likely be a short-term revenue cost associated with switching to other models 3) Google might think that the long term revenue of GSP might be higher even if it is less efficient. https: //www. quora. com/Why-does-Google-use-the-Generalized-Second-Price-auction-to-sell-search-ads-instead-of-Vickrey-Clar