Bid Coordination in Sponsored Search Auctions: Detection Methodology and Empirical Analysis

Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. This study develops a methodology to detect bid coordination, and presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. Using proprietary data from auctions held on a major search engine, coordination is detected in 55 percent of the cases of delegated bidding that we observed, and the associated upper bound on the search engine’s revenue loss ranges between 5.3 and 10.4 percent.