Pricing in Position Auctions and Online Advertising

Abstract

Can search engines increase revenues by changing their position auctions? In this paper, I analyze position auctions with general pricing rules to answer this question. In these auctions, there are several items that are commonly ranked by bidders with unit demand. I show that revenues remain the same for position auctions with regular pricing rules where the price for an item depends on the bids of agents who win lower-ranked items. In addition, all of the bidders also have the same ex post payoffs. I also show that regularity is a necessary condition to get ex post payoff equivalence.

Keywords: Position Auctions, Online Advertising, Ascending Auctions

JEL Classification: D44, L81, M37