We investigate the "generalized second-price" (GSP) auction, a new mechanism
used by search engines to sell online advertising. Although GSP looks similar to the
Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different.
Unlike the VCG mechanism, GSP generally does not have an equilibrium in
dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze
the properties of GSP, we describe the generalized English auction that corresponds
to GSP and show that it has a unique equilibrium. This is an ex post
equilibrium, with the same payoffs to all players as the dominant strategy
equilibrium of VCG. (JEL D44, L81, M37)
Edelman, Benjamin, Michael Ostrovsky and Michael Schwarz.
2007."Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords."American Economic Review,
97(1): 242-259.DOI: 10.1257/aer.97.1.242