Simplified mechanisms with an application to sponsored-search auctions

Paul Milgrom

Games and Economic Behavior, 2010, vol. 70, issue 1, 62-70

Abstract: A mechanism can be simplified by restricting its message space. If the restricted message spaces satisfy a certain "outcome closure property," then the simplification is "tight": for every [epsilon][greater-or-equal, slanted]0, any [epsilon]-Nash equilibrium of the simplified mechanism is also an [epsilon]-Nash equilibrium of the unrestricted mechanism. Prominent auction and matching mechanisms are tight simplifications of mechanisms studied in economic theory and often incorporate price-adjustment features that facilitate simplification. The generalized second-price auction used for sponsored-search advertising is a tight simplification of a series of second-price auctions that eliminates the lowest revenue equilibrium outcomes and leaves intact only higher revenue equilibria.

Keywords: Sponsored; search; Generalized; second-price; auctions; Mechanism; design (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: Simplified Mechanisms with an Application to Sponsored-Search Auctions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:70:y:2010:i:1:p:62-70

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