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Theoretical and experimental investigations of the performance of keyword auction mechanisms

Theoretical and experimental investigations of the performance of keyword auction mechanisms Two keyword auction mechanisms, the Generalized Second‐Price auction (GSP) and the Vickrey‐Clarke‐Groves mechanism (VCG), were compared theoretically and experimentally. The former is widely used in practice; the latter is not, but it has a dominant strategy equilibrium where all participants bid their true values. In the theoretical investigation, by applying the “locally envy‐free Nash equilibrium” to the VCG, we found that the allocations are efficient and that upper and lower bounds of the auctioneer's revenue coincide in the two mechanisms. A laboratory experiment, in which the revenues and efficiencies were similar in both mechanisms, supported this result. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Rand Journal of Economics Wiley

Theoretical and experimental investigations of the performance of keyword auction mechanisms

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References (29)

Publisher
Wiley
Copyright
© The RAND Corporation
ISSN
0741-6261
eISSN
1756-2171
DOI
10.1111/1756-2171.12026
Publisher site
See Article on Publisher Site

Abstract

Two keyword auction mechanisms, the Generalized Second‐Price auction (GSP) and the Vickrey‐Clarke‐Groves mechanism (VCG), were compared theoretically and experimentally. The former is widely used in practice; the latter is not, but it has a dominant strategy equilibrium where all participants bid their true values. In the theoretical investigation, by applying the “locally envy‐free Nash equilibrium” to the VCG, we found that the allocations are efficient and that upper and lower bounds of the auctioneer's revenue coincide in the two mechanisms. A laboratory experiment, in which the revenues and efficiencies were similar in both mechanisms, supported this result.

Journal

The Rand Journal of Economics – Wiley

Published: Sep 1, 2013

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