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  4. November 2013
  5. Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

  • Tilman Börgers
  • Ingemar Cox
  • Martin Pesendorfer
  • Vaclav Petricek
American Economic Journal: Microeconomics
vol. 5, no. 4, November 2013
(pp. 163–87)
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Abstract

This paper presents a game theoretic analysis of the generalized second-price auction that the company Overture operated in 2004 to sell sponsored search listings on search engines. We construct a model that embodies few prior assumptions about parameters, and we present results that indicate that this model has under quite general assumptions a multiplicity of Nash equilibria. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer preliminary conclusions about advertisers' true willingness to bid for sponsored search listings. We find that advertisers' true willingness to bid is multi-dimensional and decreasing in listing position.

Citation

Börgers, Tilman, Ingemar Cox, Martin Pesendorfer, and Vaclav Petricek. 2013. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence." American Economic Journal: Microeconomics, 5 (4): 163–87. DOI: 10.1257/mic.5.4.163

Additional Materials

JEL Classification

  • D44 Auctions
  • L86 Information and Internet Services; Computer Software
  • M31 Marketing
  • M37 Advertising
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