Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence
Martin Pesendorfer (London School of Economics)
(with Tilman Borgers, Ingemar Cox and Vaclav Petricek)
This paper presents a game theoretic analysis of the generalized second price auction that Yahoo operates to sell sponsored search listings on its search engine. We present results that indicate that this auction has a multiplicity of Nash equilibria. We also show that weak dominance arguments do not in general select a unique Nash equilibrium. We then analyze bid data assuming that advertisers choose Nash equilibrium bids. We offer some preliminary conclusions about advertisers' true willingness to bid for sponsored search listings.