Nontruthful Position Auctions Are More Robust to Misspecification

Paul Dütting (), Felix Fischer () and David C. Parkes ()
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Paul Dütting: Google Research, Zurich 8002, Switzerland
Felix Fischer: School of Mathematical Sciences, Queen Mary University of London, London E1 4NS, United Kingdom
David C. Parkes: John A. Paulson School of Engineering and Applied Sciences, Harvard University, Boston, Massachusetts 02134

Mathematics of Operations Research, 2024, vol. 49, issue 2, 901-927

Abstract: We consider the classical model of sponsored search due to Edelman et al. and Varian and examine how robust standard position auctions are to a misspecification of the position-dependent quality factors used by this model. We show that under both complete and incomplete information a nontruthful position auction admits an efficient equilibrium for a strictly broader range of parameter values than the Vickrey-Clarke-Groves (VCG) mechanism, which would be truthful if the parameters were specified correctly. Our result for complete information concerns the generalized second-price (GSP) mechanism and is driven by a detailed understanding of the Nash equilibrium polytopes of the VCG mechanism and the GSP mechanism. Our result for incomplete information concerns the generalized first-price (GFP) mechanism and uses a surprising connection between the unique candidate equilibrium bidding functions of the VCG mechanism and the GFP mechanism.

Keywords: 91B26; position auction; sponsored search; model misspecification; robustness (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormoor:v:49:y:2024:i:2:p:901-927

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