Essays on sponsored search auctions.

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Essays on sponsored search auctions.

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Yuan, Jia

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2009-07

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Abstract

This dissertation is a collection of two essays that deal with sponsored search auctions. Chapter 1 investigates and evaluates the performance of different types of sponsored search auction mechanisms. For the two popular sponsored search auctions---the Generalized First Price (GFP) auction and the Generalized Second Price (GSP) auction---current consensus in both the industry and academia is that the GSP auction is more stable and more efficient than the GFP auction. Specifically, in the GSP auction, bidders are less likely to game the systemtextquotedblright, meaning that an individual bidder will change his bid less frequently; his bid range will be smaller; and a bidder with a higher value will be more likely to win a higher and better slot. This paper examines this prevailing belief using a Regression Discontinuity Design (RDD) approach and finds that after bidders switch to the GSP auction, they actually bid 36% more frequently and increase their daily bid range by $1.31. To compare efficiency differences, this paper constructs an efficiency index and shows that the GSP auction mechanism is at least 4% more efficient. Chapter 2 examines how different automated bidding strategies impact advertisers' bidding performances. It backtests and simulates the following simple strategies: targeting specific position (Position Targeting), monitoring the cost per purchase ( Cost-per-Purchase Bidding), setting a constant bid (Constant Bidding), and monitoring the return of investment (ROI strategy). The simulation shows that advertisers' optimal strategies are depending on their budget, value per click and the degree of market competition. Keeping other variables controlled, when the advertiser's budget is small, her optimal strategy will be Constant Bidding; as her budget increases and passes certain critical value, ROI Bidding or CPP Bidding will become her optimal choice; as advertiser's value per click increases, Targeting Position 1 will become more and more attractive; as the market become more competitive, the performance of ROI Bidding is converging to that of Targeting Position.

Keywords

Aution

Automated Bidding

Backtesting

Regression Discontinuity

Sponsored Search Auction

Economics

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University of Minnesota Ph.D. dissertation. July 2009. Major: Economics. Advisor: Patrick Bajari. 1 computer file (PDF); vii, 72 pages.

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Yuan, Jia. (2009). Essays on sponsored search auctions.. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/53868.

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