[gov3009-l] Athey on "Sponsored Search Advertising Auctions"
mblackwell at iq.harvard.edu
Tue Sep 29 10:58:05 EDT 2009
Please join us at the Applied Statistics workshop this Wednesday, Sept
30th when we will be delighted to have the distinguished Susan Athey,
Professor of Economics here at Harvard presenting on "A Structural
Model of Equilibrium and Uncertainty in Sponsored Search Advertising
Auctions" (joint work with Denis Nekipelov). Susan has passed along
the following abstract:
Sponsored links that appear beside internet search results on the
major search engines are sold using real-time auctions, where
advertisers place standing bids that are entered in an auction each
time a user types in a search query. The ranking of advertisements and
the prices paid depend on advertiser bids as well as "quality scores"
that are assigned for each advertisement and user query. Existing
models assume that bids are customized for a single user query and the
associated quality scores; however, in practice that is impossible, as
queries arrive more quickly than advertisers can change their bids,
and advertisers cannot perfectly predict changes in quality scores.
This paper develops a new model where bids apply to many user queries,
while the quality scores and the set of competing advertisements may
vary from query to query. In contrast to existing models that ignore
uncertainty, which produce multiplicity of equilibria, we provide
sufficient conditions for existence and uniqueness of equilibria, and
we provide evidence that these conditions are satisfied empirically.
We show that the necessary conditions for equilibrium bids can be
expressed as an ordinary differential equation.
We then propose a structural econometric model. With sufficient
uncertainty in the environment, the valuations are point-identified,
otherwise, we propose a bounds approach. We develop an estimator for
bidder valuations, which we show is consistent and asymptotically
normal. We provide Monte Carlo analysis to assess the small sample
properties of the estimator. We also develop a tractable computational
approach to calculate counterfactual equilibria of the auctions.
Finally, we apply the model to historical data for several keywords.
We show that our model yields lower implied valuations and bidder
profits than approaches that ignore uncertainty. We find that bidders
have substantial strategic incentives to reduce their expressed demand
in order to reduce the unit prices they pay in the auctions, and in
addition, these incentives are asymmetric across bidders, leading to
inefficient allocation. We show that for the
keywords we study, the auction mechanism used in practice is not only
strictly less efficient than a Vickrey auction, but it also raises
We will start at 12 noon with a light lunch, with the presentation
beginning around 12:15. We usually wrap up around 1:30 pm. We hope you
can make it.
Institute for Quantitative Social Science
Department of Government
email: mblackwell at iq.harvard.edu
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