Economics scholars at Stanford Business School have released a research report titled, ‘Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords’. The study is related to keyword auction mechanisms used by Yahoo! and Google.


Economics scholars at Stanford Business School have released a research report titled, ‘Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords’. The study is related to keyword auction mechanisms used by Yahoo! and Google.

The economic scholars Benjamin Edelman, Michael Ostrovsky, Michael Schwarz have stated in the report abstract, “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.” [source]

The research compares GSP with Vickrey-Clarke-Groves, VCG mechanism.

The similarities includes:

The payment of a bidder does not directly depend on his bid.

The differences include:

VCG mechanism has an equilibrium in dominant strategies. GSP generally does not have an equilibrium in dominant strategies.

Truth-telling is not an equilibrium of GSP.

To read the full research report (22 pages) click here.

This report is in Pdf format. You will need Adobe Acrobat to read this report. To download a free acrobat reader click here.

 

 

 

 

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