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Simplified Mechanisms with Applications to Sponsored Search and Package Auctions

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  • Paul Milgrom

Abstract

A simplified mechanism is a direct mechanism modified by restricting the set of reports or bids. An example is the auction used to place ads on Internet search pages, in which each advertiser bids a single price to determine the allocation of eight or more ad positions on a page. If a simplified mechanism satisfies the “best-reply-closure” property, then all Nash equilibria of the simplified mechanism are also equilibria of the original direct mechanism. For search advertising auctions, suitable simplifications eliminate inefficient, low-revenue equilibria that are favored in the original direct mechanism when bidding costs are positive.
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  • Paul Milgrom, 2007. "Simplified Mechanisms with Applications to Sponsored Search and Package Auctions," Levine's Bibliography 122247000000001454, UCLA Department of Economics.
    • Handle: RePEc:cla:levrem:122247000000001454
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    File URL: http://www.stanford.edu/~milgrom/WorkingPapers/Simplified%20Mechanisms.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pallavi Pal, 2023. "Sponsored Search Auction and the Revenue- Maximizing Number of Ads per Page," CESifo Working Paper Series 10299, CESifo.
    2. Goeree, Jacob K. & Holt, Charles A., 2010. "Hierarchical package bidding: A paper & pencil combinatorial auction," Games and Economic Behavior, Elsevier, vol. 70(1), pages 146-169, September.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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