Author(s)
Benjamin Edelman and Michael Schwarz
Source
ACM Conference on Electronic Commerce, 2006
Summary
This paper looks at how search engines that sell online ads could make more revenue.
Policy Relevance
Sometimes, adding a reserve price to auctions can generate more revenues for a search engine than recruiting more advertisers can.
Main Points
- Search engines like Google and Yahoo use a new method called the “generalized second price” auction (GSP) to sell ads.
- Internet advertisers bid on the keywords used by users of search engines. When the keyword is used, the search engine shows an ad. Where the ad appears on the page depends in part on the bid.
- In the GSP auction, if a user clicks an ad in position K, the advertiser pays the next highest bid, K+1.
- In some auctions, bids that fall below a minimum price will not appear at all; the auction has a “reserve price.”
- Yahoo’s reserve price has increased from about 5 cents to about 10 cents; Google’s reserve price varies.
- Use of a reserve price can increase how much advertisers pay to the search engine substantially; in one example, by as much as 68%.
- Use of a reserve price can make bidders drop out, but also tends to raise the bids of bidders who do not drop out.
- Having a reserve price makes the biggest difference when there are few bidders.
- Search engines like Google and Yahoo! are trying to encourage more bidders. Sometimes, though, a reserve price might increase revenues more than increasing the number of bidders will.
