2007 – Page 2 – Ben Edelman

Edelman, Benjamin, and Michael Ostrovsky. “Strategic Bidder Behavior in Sponsored Search Auctions.” Decision Support Systems 43, no. 1 (February 2007): 192-198. (Winner of Emerald Citations of Excellence.)

We examine sponsored search auctions run by Overture (now part of Yahoo!) and Google and present evidence of strategic bidder behavior in these auctions. Between June 15, 2002, and June 14, 2003, we estimate that Overture’s revenue from sponsored search might have been higher if it had been able to prevent this strategic behavior. We present a specific alternative mechanism that could reduce the amount of strategizing by bidders, raise search engines’ revenue, and also increase the overall efficiency of the market. We conclude by showing that advertisers’ strategic behavior has not disappeared over time; rather, such behavior remains present on both search engines.

Cary, Matthew, Aparna Das, Benjamin Edelman, Ioannis Giotis, Kurtis Heimerl, Anna Karlin, Claire Mathieu, and Michael Schwarz. “Greedy Bidding Strategies for Keyword Auctions.” Proceedings of the International Conference on Electronic Commerce (2007): 262-271.

How should players bid in keyword auctions such as those used by Google, Yahoo! and MSN? We consider greedy bidding strategies for a repeated auction on a single keyword, where in each round, each player chooses some optimal bid for the next round, assuming that the other players merely repeat their previous bid. We study the revenue, convergence and robustness properties of such strategies. Most interesting among these is a strategy we call the balanced bidding strategy (bb): it is known that bb has a unique fixed point with payments identical to those of the VCG mechanism. We show that if all players use the bb strategy and update each round, bb converges when the number of slots is at most 2, but does not always converge for 3 or more slots. On the other hand, we present a simple variant which is guaranteed to converge to the same fixed point for any number of slots. In a model in which only one randomly chosen player updates each round according to the bb strategy, we prove that convergence occurs with probability 1. We complement our theoretical results with empirical studies.