NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Benjamin Edelman

Harvard Business School
Baker Library 445
Soldiers Field
Boston, Massachusetts 02163

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NBER Working Papers and Publications

February 2008On Best-Response Bidding in GSP Auctions
with Matthew Cary, Aparna Das, Ioannis Giotis, Kurtis Heimerl, Anna R. Karlin, Claire Mathieu, Michael Schwarz: w13788
How should players bid in keyword auctions such as those used by Google, Yahoo! and MSN? We model ad auctions as a dynamic game of incomplete information, so we can study the convergence and robustness properties of various strategies. In particular, we consider best-response bidding strategies for a repeated auction on a single keyword, where in each round, each player chooses some optimal bid for the next round, assuming that the other players merely repeat their previous bids. We focus on a strategy we call Balanced Bidding (bb). If all players use the bb strategy, we show that bids converge to a bid vector that obtains in a complete information static model proposed by Edelman, Ostrovsky and Schwarz (2007). We prove that convergence occurs with probability 1, and we compute the expecte...
November 2005Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords
with Michael Ostrovsky, Michael Schwarz: w11765
We investigate the "generalized second price" auction (GSP), a new mechanism which is used by search engines to sell online advertising that most Internet users encounter daily. GSP is tailored to its unique environment, and neither the mechanism nor the environment have previously been studied in the mechanism design literature. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. In particular, 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 in a dynamic environment, we describe the generalized English auction that corresponds to the GSP and show that it has a unique equilibrium. This is an ex post equilibrium...

Published: 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. citation courtesy of

 
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