58 Pages Posted: 16 Nov 2014 Last revised: 31 May 2017
Date Written: November 20, 2014
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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