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Nonparametric Estimation of Sponsored Search Auctions and Impacts of AD Quality on Search Revenue

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  • Dongwoo Kim
  • Pallavi Pal

Abstract

This paper presents an empirical model of sponsored search auctions in which advertisers are ranked by bid and ad quality. We introduce a new nonparametric estimator for the advertiser’s ad value and its distribution under the ‘incomplete information’ assumption. The ad value is characterized by a tractable analytical solution given observed auction parameters. Using Yahoo! search auction data, we estimate value distributions and study the bidding behavior across product categories. We find that advertisers shade their bids more when facing less competition. We also conduct counterfactual analysis to evaluate the impact of score squashing (ad quality raised to power θ

Suggested Citation

  • Dongwoo Kim & Pallavi Pal, 2023. "Nonparametric Estimation of Sponsored Search Auctions and Impacts of AD Quality on Search Revenue," CESifo Working Paper Series 10312, CESifo.
    • Handle: RePEc:ces:ceswps:_10312
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    Keywords

    sponsored search links; generalized second price auction; incomplete information; nonparametric estimation; bid shading; score quashing;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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