An experimental study of sponsored-search auctions

Yeon-Koo Che, Syngjoo Choi and Jinwoo Kim

Games and Economic Behavior, 2017, vol. 102, issue C, 20-43

Abstract: We study the Generalized Second Price auctions—a standard method for allocating online search advertising—experimentally, considering both the static environment assumed by the prevailing theory and a dynamic game capturing the salient aspects of real-world search advertising auctions. Subjects of our experiment bid consistently with the leading equilibrium notions, but exhibit significant overbidding relative to the Vickrey–Clarke–Groves (VCG) outcome favored as an equilibrium selection in the literature. The observed bidding behavior is well explained by a model that explicitly accounts for the strategic uncertainty facing a bidder, which suggests strategic uncertainty as a source of the observed departure from the VCG outcome. Meanwhile, the observed bidding behavior in static environment approximates those of dynamic environments for important cases. Our finding thus provides some empirical support for the use of a static game as a valid modeling proxy, but calls into question the prevailing equilibrium selection.

Keywords: Online advertising; Sponsored search auction; Generalized second price auction; Experiment (search for similar items in EconPapers)
JEL-codes: C92 D44 M3 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825616301233
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:102:y:2017:i:c:p:20-43

DOI: 10.1016/j.geb.2016.10.008

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().