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American Economic Journal: Microeconomics: Vol. 5 No. 4 (November 2013)

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Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence

Article Citation

Börgers, Tilman, Ingemar Cox, Martin Pesendorfer, and Vaclav Petricek. 2013. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence." American Economic Journal: Microeconomics, 5(4): 163-87.

DOI: 10.1257/mic.5.4.163

Abstract

This paper presents a game theoretic analysis of the generalized second-price auction that the company Overture operated in 2004 to sell sponsored search listings on search engines. We construct a model that embodies few prior assumptions about parameters, and we present results that indicate that this model has under quite general assumptions a multiplicity of Nash equilibria. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer preliminary conclusions about advertisers' true willingness to bid for sponsored search listings. We find that advertisers' true willingness to bid is multi-dimensional and decreasing in listing position.

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Authors

Börgers, Tilman (U MI)
Cox, Ingemar (U College London)
Pesendorfer, Martin (London School of Economics and Political Science)
Petricek, Vaclav (eHarmony Inc, Santa Monica, CA)

JEL Classifications

D44: Auctions
L86: Information and Internet Services; Computer Software
M31: Marketing
M37: Advertising

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