Munich Personal RePEc Archive

Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

Börgers, Tilman and Cox, Ingemar and Pesendorfer, Martin and Petricek, Vaclav (2008): Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence.

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Abstract

This paper presents a game theoretic analysis of the generalized second price auc- tion that the company Overture operated in 2004 to sell sponsored search listings on its search engine. We present results that indicate that this auction has a multi- plicity of Nash equilibria. We also show that weak dominance arguments do not in general select a unique Nash equilibrium. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer some preliminary conclu- sions 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.

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