University of Washington
Department of Computer Science
Seattle, WA 98195
NBER Working Papers and Publications
|February 2008||On Best-Response Bidding in GSP Auctions|
with Matthew Cary, Aparna Das, Benjamin Edelman, 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...