To Bid or Not to Bid? Entry, Bid Shading, and Bias in Sponsored Search Auctions

Eeva Mauring, Anastasiia Parakhonyak and Cole Williams

No 21754, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study participation in sponsored-search auctions when sellers can also appear as organic results. Under the platform’s ex post revenue-maximizing display rule, organic placement acts as an endogenous outside option: the best-matched sellers shade their bids and entry into bidding remains incomplete. The platform gains by committing to show more sponsored results than is ex post optimal, degrading match quality. Empirically, using Amazon search data and a Gini-based measure of query breadth, we confirm the model’s predictions: narrower queries receive fewer sponsored results, and sponsored results are worse matched than organic ones, especially for narrow queries.

Keywords: Search platforms; Auctions; Bidder participation; Ranking bias (search for similar items in EconPapers)
JEL-codes: C72 D47 L81 (search for similar items in EconPapers)
Date: 2026-07
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