Cost of Conciseness in Sponsored Search Auctions

Abstract

The generalized second price auction used in sponsored search has been analyzed for models where bidders value clicks on ads. However, advertisers do not derive value only from clicks, nor do they value clicks in all slots equally. There is a need to understand sponsored search auctions in a setting with more general bidder valuations, in order to encompass realistic advertising objectives such as branding and conversions.

We investigate the practical scenario where bidders have a full spectrum of values for slots, which are not necessarily proportional to the expected number of clicks received, and report a single scalar bid to the generalized second price auction. We show that there always exists an equilibrium corresponding to the VCG outcome using these full vector values, under monotonicity conditions on the valuations of bidders and clickthrough rates. Further, we discuss the problem of bidding strategies leading to such efficient equilibria: contrary to the case when bidders have one-dimensional types, bidding strategies with reasonable restrictions on bid values do not exist.