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Position Auctions in Practice

58 Pages Posted: 16 Nov 2014 Last revised: 31 May 2017

Matt Goldman

Microsoft Corporation - Microsoft Research - Redmond; UC San Diego

Justin M. Rao

Microsoft Research; Microsoft Corporation - Microsoft Research - Redmond

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

Suggested Citation

Goldman, Matt and Rao, Justin M., Position Auctions in Practice (November 20, 2014). Available at SSRN: https://ssrn.com/abstract=2524688 or http://dx.doi.org/10.2139/ssrn.2524688

Matt Goldman

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

UC San Diego ( email )

CA
United States

Justin M. Rao (Contact Author)

Microsoft Research ( email )

641 Avenue of Americas
7th Floor
New York, NY 11249
United States

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

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