Evolutionary stability in the generalized second-price auction

Thomas Norman

Economic Theory, 2021, vol. 71, issue 1, No 8, 235-250

Abstract: Abstract The “generalized second-price auction” is widely employed to sell internet advertising positions and has many equilibria. Analysis of this auction has assumed that myopic players commonly know each others’ position values, and that the resulting equilibrium play is “locally envy-free”. Here, I argue that the appropriate refinement of Nash equilibrium for this setting is evolutionary stability, and show that it implies that an equilibrium is locally envy-free if the whole population of players bids in each auction and the set of possible bids is not too coarse. However, not all locally envy-free equilibria are evolutionarily stable in this case, as I show by example for the popular Vickrey–Clarke–Groves outcome. The existence of evolutionarily stable equilibrium is established when one position is auctioned, as well as for two positions and a large number of bidders.

Keywords: Online advertising; Internet auctions; Position auctions; Evolutionarily stable strategy; Locally envy-free equilibrium; Symmetric Nash equilibrium; Vickrey–Clarke–Groves outcome; Spite (search for similar items in EconPapers)
JEL-codes: C73 D44 L81 L86 M3 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00199-019-01240-5

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