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Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

Author

Listed:
  • Börgers, Tilman
  • Cox, Ingemar
  • Pesendorfer, Martin
  • Petricek, Vaclav
Abstract
This paper presents a game theoretic analysis of the generalized second price auc- tion that the company Overture operated in 2004 to sell sponsored search listings on its search engine. We present results that indicate that this auction has a multi- plicity of Nash equilibria. We also show that weak dominance arguments do not in general select a unique Nash equilibrium. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer some preliminary conclu- sions about advertisers’ true willingness to bid for sponsored search listings. We find that advertisers’ true willingness to bid is multi-dimensional and decreasing in listing position.

Suggested Citation

  • Börgers, Tilman & Cox, Ingemar & Pesendorfer, Martin & Petricek, Vaclav, 2008. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," MPRA Paper 29125, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29125
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    References listed on IDEAS

    as
    1. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
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    More about this item

    Keywords

    auctions; sponsored search.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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