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Hybrid keyword search auctions

Published: 20 April 2009 Publication History

Abstract

Search auctions have become a dominant source of revenue generation on the Internet. Such auctions have typically used per-click bidding and pricing. We propose the use of hybrid auctions where an advertiser can make a per-impression as well as a per-click bid, and the auctioneer then chooses one of the two as the pricing mechanism. We assume that the advertiser and the auctioneer both have separate beliefs (called priors) on the click-probability of an advertisement. We first prove that the hybrid auction is truthful, assuming that the advertisers are risk-neutral. We then show that this auction is superior to the existing per-click auction in multiple ways: We show that risk-seeking advertisers will choose only a per-impression bid whereas risk-averse advertisers will choose only a per-click bid, and argue that both kind of advertisers arise naturally. Hence, the ability to bid in a hybrid fashion is important to account for the risk characteristics of the advertisers. For obscure keywords, the auctioneer is unlikely to have a very sharp prior on the click-probabilities. In such situations, we show that having the extra information from the advertisers in the form of a per-impression bid can result in significantly higher revenue. An advertiser who believes that its click-probability is much higher than the auctioneer's estimate can use per-impression bids to correct the auctioneer's prior without incurring any extra cost. The hybrid auction can allow the advertiser and auctioneer to implement complex dynamic programming strategies to deal with the uncertainty in the click-probability using the same basic auction. The per-click and per-impression bidding schemes can only be used to implement two extreme cases of these strategies. As Internet commerce matures, we need more sophisticated pricing models to exploit all the information held by each of the participants. We believe that hybrid auctions could be an important step in this direction. The hybrid auction easily extends to multiple slots, and is also applicable to scenarios where the hybrid bidding is per-impression and per-action (i.e. CPM and CPA), or per-click and per-action (i.e. CPC and CPA).

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cover image ACM Conferences
WWW '09: Proceedings of the 18th international conference on World wide web
April 2009
1280 pages
ISBN:9781605584874
DOI:10.1145/1526709

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 20 April 2009

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Author Tags

  1. internet
  2. keyword auctions
  3. mechanism design

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  • (2018)Auctions for online ad space among advertisers sensitive to both views and clicksElectronic Commerce Research10.1007/s10660-017-9267-618:3(485-506)Online publication date: 1-Sep-2018
  • (2015)An Expressive Mechanism for Auctions on the WebACM Transactions on Economics and Computation10.1145/27163124:1(1-34)Online publication date: 2-Dec-2015
  • (2015)Sponsored Search AuctionsACM Transactions on Intelligent Systems and Technology10.1145/26681085:4(1-34)Online publication date: 23-Jan-2015
  • (2015)Ad ExchangeProceedings of the 2015 IEEE / WIC / ACM International Conference on Web Intelligence and Intelligent Agent Technology (WI-IAT) - Volume 0110.1109/WI-IAT.2015.35(220-225)Online publication date: 6-Dec-2015
  • (2014)Truthful and efficient mechanisms for Website dependent advertising auctionsMultiagent and Grid Systems10.3233/MGS-14021610:2(67-94)Online publication date: 1-Mar-2014
  • (2014)Beyond CPM and CPCProceedings of the second ACM conference on Online social networks10.1145/2660460.2660477(161-168)Online publication date: 1-Oct-2014
  • (2014)Generalized second price auction with probabilistic broad matchProceedings of the fifteenth ACM conference on Economics and computation10.1145/2600057.2602828(39-56)Online publication date: 1-Jun-2014
  • (2013)Information Asymmetry and Hybrid AdvertisingJournal of Marketing Research10.1509/jmr.13.007451:5(609-624)Online publication date: 1-Oct-2013
  • (2013)ABACUSProceedings of the 2013 IEEE International Conference on Cloud Engineering10.1109/IC2E.2013.43(292-301)Online publication date: 25-Mar-2013
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