Position Auctions with Consumer Search
54 Pages Posted: 18 Aug 2009 Last revised: 6 Sep 2010
Date Written: August 2009
This paper examines a model in which advertisers bid for "sponsored-link" positions on a search engine. The value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about firm qualities and search optimally. Consumer search strategies, equilibrium bidding, and the welfare benefits of position auctions are analyzed. Implications for reserve prices and a number of other auction design questions are discussed.
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