5.2 Ad Auctions

8/10/2019 5.2 Ad Auctions

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FLOWER AUCTIONS IN AMSTERDAM


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Ad Auctions

October 2, 2009


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Overture slide


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Motivation

Market inherently interesting

98% of Googles and ~50% of Yahoos revenues

Future of advertising

Unusual auction rules Multiple units, but only one bid. Continuous time.

Structured market

Rules. Almost like a lab. Good data. Purely electronic market

No goods ever shipped anywhere.

Flexibility to change auction rules from time to time


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Market history & evolution

early banner ads(circa 1994)

Overture (Goto.com)(1997)

per-impression pricing per-click pricing

limited targeting keyword targeting

person-to-personnegotiations

automated acceptanceof revised bids

generalized first-price

auction rules


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Generalized first price auctions

Problem: Generalized first price auctions areunstable.

No pure strategy equilibrium, and bids can beadjusted dynamically. Bidders want to revisetheir bids as often as possible.


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Edelman and Ostrovsky, 2007

Yahoo data from June 15, 2002 to June 14, 2003

1000 top markets

10,475 bidders18,634,347 bids

Observe bids at the quarter-hour


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CyclingTime Market Bidder Bid6/17/2002 6:30 AM 24 13 $5.916/17/2002 6:30 AM 24 810 $5.92

6/17/2002 6:30 AM 24 14 $5.936/17/2002 6:30 AM 24 13 $5.946/17/2002 6:30 AM 24 60 $5.956/17/2002 6:30 AM 24 14 $5.966/17/2002 6:45 AM 24 810 $5.97

6/17/2002 6:45 AM 24 13 $5.976/17/2002 11:30 PM 24 13 $9.986/17/2002 11:30 PM 24 14 $9.986/17/2002 11:45 PM 24 14 $10.00

6/17/2002 11:45 PM 24 60 $10.006/17/2002 11:45 PM 24 13 $10.006/17/2002 11:45 PM 24 810 $10.016/17/2002 11:45 PM 24 14 $10.026/17/2002 11:45 PM 24 13 $5.12

6/17/2002 11:45 PM 24 14 $5.13


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Cycling

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Alternative mechanisms

Generalized first-price

Generalized second-price

Pay the bid of the next-highest bidder

First implemented by Google (2002),later adopted by Yahoo

VCG

Each bidder pays the externality heimposes on others


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Generalized second-price auctions

Position Bidder Bid

1 A $7

2 B $6

3 C $5

Payment

$6.01

$5.01

$0.10


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Computing VCG payments: example

Position # clicks

1 100

2 80

Bidder Valuation

A $8

B $5

C $10

Cs payment:

C pushes A from 1 to 2C pushes B out completely

So C should pay $160+$400=$560

loss of surplus (100-80)*$8=$160 loss of surplus 80*$5=$400


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GSP in use

Adv Bid Payment

A $3.01 $3.01

B $3.00 $2.81

C $2.80 $1.11

D $1.10


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GSP versus Vickrey and VCG

With only one slot, GSP is identical tostandard second price auctions (Vickrey, VCG)

With multiple slots, the mechanisms differ GSP charges bidder i the bid of bidder i+1

VCG charges bidder i for his externality

[Googles] unique auction model uses NobelPrize-winning economic theory to eliminate

that feeling that youve paid too much.- Google marketing materials


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Truth-telling is not a dominantstrategy under GSP

Intuition: Sometimes, bid below your true valuation.You may get less traffic, but youll earn greater profits.

bidder bid

A $8

B $5

Cs valuation: $10

C bids $10, pays $8 payoff ($10-$8)*100 =$200

C bids $6, pays $5 payoff ($10-$5)*80 =$400

Suppose there are 3 bidders but 2 positions.

Positions have click-through rates 100 and 80.

$400>$200. So C should place a bid below its valuation.


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Bidders actual strategies

Documents

5.2 Ad Auctions