Abstract

http://ssrn.com/abstract=948310
 
 

References (20)



 
 

Citations (16)



 


 



Ex Ante Information and the Design of Keyword Auctions


De Liu


University of Minnesota - Twin Cities - Carlson School of Management

Jianqing Chen


University of Texas at Dallas - Jindal School of Management

Andrew B. Whinston


University of Texas at Austin - Department of Information, Risk and Operations Management

November 1, 2006

Information Systems Research, Vol. 21, No. 1, pp. 133-153, 2010

Abstract:     
This paper discusses a class of auctions, weighted unit-price auctions (WUPAs), which capture key features of keyword auctions, a novel mechanism behind the multi-billion-dollar keyword advertising industry. We analyze the equilibrium bidding strategy in the WUPA class and study its two main design parameters - weighting factors and minimum bids - both of which make use of the auctioneer's ex-ante information on bidders' ability to generate outcomes. Our results indicate equilibrium bidding functions in WUPAs may have kinks and jumps. WUPAs can be efficient when an auctioneer weights unit-price bids by bidders' expected yield and imposes the same minimum score (but not the same minimum bid-price) across all bidders. Optimally weighted WUPAs can generate more revenue than generalized first-price auctions, and optimal minimum bids generally differ from those prescribed in the mechanism design literature.

Number of Pages in PDF File: 38

Keywords: keyword advertising, weighted unit-price auctions, ex-ante information, score rule, Google and Yahoo

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Date posted: November 30, 2006 ; Last revised: October 22, 2012

Suggested Citation

Liu, De and Chen, Jianqing and Whinston, Andrew B., Ex Ante Information and the Design of Keyword Auctions (November 1, 2006). Information Systems Research, Vol. 21, No. 1, pp. 133-153, 2010. Available at SSRN: http://ssrn.com/abstract=948310

Contact Information

De Liu (Contact Author)
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
Jianqing Chen
University of Texas at Dallas - Jindal School of Management ( email )
2601 North Floyd Road
Richardson, TX 75083
United States
Andrew B. Whinston
University of Texas at Austin - Department of Information, Risk and Operations Management ( email )
CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)
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