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Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords

Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth... Abstract We investigate the “generalized second-price” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze the properties of GSP, we describe the generalized English auction that corresponds to GSP and show that it has a unique equilibrium. This is an ex post equilibrium, with the same payoffs to all players as the dominant strategy equilibrium of VCG. (JEL D44, L81, M37 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords

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Publisher
American Economic Association
Copyright
Copyright © 2007 by the American Economic Association
Subject
Articles
ISSN
0002-8282
DOI
10.1257/aer.97.1.242
Publisher site
See Article on Publisher Site

Abstract

Abstract We investigate the “generalized second-price” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze the properties of GSP, we describe the generalized English auction that corresponds to GSP and show that it has a unique equilibrium. This is an ex post equilibrium, with the same payoffs to all players as the dominant strategy equilibrium of VCG. (JEL D44, L81, M37 )

Journal

American Economic Review – American Economic Association

Published: Mar 1, 2007

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