2007•American Economic ReviewRequires access

Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords

Benjamin Edelman, Michael Ostrovsky, Michael Schwarz

Abstract

We investigate the “generalized second-price” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze the properties of GSP, we describe the generalized English auction that corresponds to GSP and show that it has a unique equilibrium. This is an ex post equilibrium, with the same payoffs to all players as the dominant strategy equilibrium of VCG. (JEL D44, L81, M37)

About this research paper

What this paper is about

Why it matters

OpenAlex reports 1638 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

Key concepts: Economics, Mathematical economics, Vickrey auction, Microeconomics, Generalized second-price auction, Mechanism (biology), Vickrey–Clarke–Groves auction, Advertising