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Multi-bidding strategy in sponsored search auctions

Author

Listed:
  • Tian-Ming Bu

    (East China Normal University)

  • Xiaotie Deng

    (City University of Hong Kong)

  • Qi Qi

    (Stanford University)

Abstract

The generalized second price auction has recently become a much studied model for sponsored search auctions for Internet advertisement. Though it is known not to be incentive compatible, properties of its pure Nash equilibria have been well characterized under the single bidding strategy of each bidder. In this paper, we study the properties of pure Nash equilibria of the generalized second price auction when each bidder is allowed to submit more than one bid. This multi-bidding strategy is noted to have been adopted by companies for keyword advertisements on search engines. In consideration of the pure Nash equilibria, we completely characterize conditions on the number of selling slots for a pure Nash equilibrium to exist, assuming all the advertisers are allowed to use multi-bidding strategies or only one advertiser will use a multi-bidding strategy. Our findings reveal interesting properties of limitations and potentials of the generalized second price auction for the sponsored search market.

Suggested Citation

  • Tian-Ming Bu & Xiaotie Deng & Qi Qi, 2012. "Multi-bidding strategy in sponsored search auctions," Journal of Combinatorial Optimization, Springer, vol. 23(3), pages 356-372, April.
    • Handle: RePEc:spr:jcomop:v:23:y:2012:i:3:d:10.1007_s10878-010-9297-7
    DOI: 10.1007/s10878-010-9297-7
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    References listed on IDEAS

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    1. Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, January.
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    3. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    4. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    5. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
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    Cited by:

    1. Xiangzhong Xiang, 2015. "Prompt mechanism for online auctions with multi-unit demands," Journal of Combinatorial Optimization, Springer, vol. 30(2), pages 335-346, August.

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