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Design of an optimal auction for sponsored search auctions

Garg, Dinesh and Narahari, Y and Reddy, Siva Sankar (2007) Design of an optimal auction for sponsored search auctions. In: 9th IEEE International Conference on E-Commerce Technology/4th IEEE International Conference on Enterprise Computing, E-Commerce and E-Services, JUL 23-26, 2007, Tokyo.

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In this paper we first describe a framework to model the sponsored search auction on the web as a mechanism design problem. Using this framework, we design a novel auction which we call the OPT (optimal) auction. The OPT mechanism maximizes the search engine's expected revenue while achieving Bayesian incentive compatibility and individual rationality of the advertisers. We show that the OPT mechanism is superior to two of the most commonly used mechanisms for sponsored search namely (1) GSP (Generalized Second Price) and (2) VCG (Vickrey-Clarke-Groves). We then show an important revenue equivalence result that the expected revenue earned by the search engine is the same for all the three mechanisms provided the advertisers are symmetric and the number of sponsored slots is strictly less than the number of advertisers.

Item Type: Conference Paper
Publisher: IEEE
Additional Information: Copyright 2007 IEEE. Personal use of this material is permitted. However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE.
Department/Centre: Division of Electrical Sciences > Computer Science & Automation
Date Deposited: 26 Mar 2010 09:53
Last Modified: 19 Sep 2010 05:58
URI: http://eprints.iisc.ac.in/id/eprint/26502

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