Position Auctions in Practice
58 Pages Posted: 16 Nov 2014 Last revised: 31 May 2017
Date Written: November 20, 2014
Abstract
The generalized second price (GSP) auction allocates billions of dollars of advertising via position auctions. Theory tells us that the GSP achieves the efficiency of the Vickrey-Clarke-Groves mechanism but with greater revenue, provided better positions increase click-through-rate by the same scaling factor for all ads. Since position is endogenous, this assumption is largely untested. We develop a novel method, “experiments-as-instruments,” to re-purpose internal business experimentation to estimate the causal impact of position for 20,000 search ads. We strongly reject the multiplicatively-separable model, position effects differ by 100% across ads, which is partially explained by advertiser attributes.
Keywords: Sponsored Search, Mechanism Design, Instrumental Variables
JEL Classification: C57
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