Databases Reference
In-Depth Information
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We are assuming that a sponsored-search auction is the only way, strategically,
for a business to advertise and will therefore affect the advertiser's decisions in
the auction. (Most advertisers also focus on SEO tactics or have
intermarketing
communication
(IMC) advertising efforts that might include television, radio, or
print advertising channels.)
These are all critical assumptions of which one must be aware within the context
of the sponsored-search auction. However, for the purposes of explanation, these
assumptions make the presentation clearer. We keep the assumptions with the clar-
ification that they represent the auction at a particular moment in time and that the
conditions can rapidly change.
Additionally, all models are simplifications of the real-world process that is going
on, so we should not be surprised that it happens with sponsored search. The assump-
tions listed earlier are limitations to keep in mind when applying these auction mod-
els to real-world efforts.
Sponsored-Search Auction Bid Scenarios
Walking through a sponsored-search auction under different conditions helps see
how the process of bidding and pricing plays out under varying market conditions
and assumptions. For a good review of the bidding process on both branded and non-
branded keyphrases, see various works by Shah [
19
-21].
We first examine the issue of being truthful, which is auction talk for placing a bid
that reflects the actual value you have determined for the resource.
Example - Each Advertiser Bids Truthfully
There is a given keyphrase that three advertisers, A, B, and C, wish to link to one or
more of their ads. The search engine has based a minor minimum floor on bids, and
the valuation from the three advertisers is more than this minimum.
Each advertiser places a bid.
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Bidder A bids $1.00
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Bidder B bids $1.10
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Bidder C bids $1.20
In this scenario, C wins the bid but pays only $1.11, because in the sponsored-search
auction, advertisers do not pay their actual bid; instead, they pay the second-highest
bid plus a small delta (i.e., a small change, think of it as one cent). This is the basis for
the Generalized Second Price auction, which is one of the sponsored search's most
famous auction implementations.
Recall that the search engine is the auctioneer, and the advertisers are also pay-
ing the search engine, as the search engine is also the seller of the resource (i.e.,
keyphrases).
So, why would a search engine use the Generalized Second Price approach? It
would seem in the Generalized Second Price auction that the search engine is getting
