Sponsored search auctions: an overview of research with emphasis on game theoretic aspects

Patrick Maillé, Evangelos Markakis, Maurizio Naldi, George D. Stamoulis, Bruno Tuffin
2012 Electronic Commerce Research  
We provide a broad overview of the research that has been conducted until recently on the design of sponsored search auctions. We mainly focus on game theoretic and mechanism design aspects of these auctions, and we analyze the issues associated with each of the three participating entities, i.e., the search engine, the advertisers, and the users of the search engine, as well as their resulting behavior. Regarding the search engine, we overview the various mechanisms that have been proposed
more » ... uding the currently used GSP mechanism. The issues that are addressed include analysis of Nash equilibria and their performance, design of alternative mechanisms and aspects of competition among search engines. We then move on to the advertisers and discuss the problem of choosing a bidding strategy, given the mechanism of the search engine. Following this, we consider the end users and we examine how P. Maillé ( ) Institut Mines-Telecom, Telecom Bretagne, 2, rue de la châtaigneraie CS 17607, Author's personal copy 266 P. Maillé et al. user behavior may create externalities and influence the performance of the advertisers. Finally, we also overview statistical methods for estimating modeling parameters that are of interest to the three entities. In each section, we point out interesting open problems and directions for future research. Keywords Sponsored search auctions · Keyword auctions · Search engines · Mechanism design · Game theory · Nash equilibrium Introduction Online advertising is a booming industry, accounting for a large percentage of the revenue generated by web services [51]. Online ads are essential to monetize valuable Internet services, offered for free to the general public, like search engines, blogs, and social networking sites; e.g. see [46, 90] . They have potential benefits for the advertisers, who can observe the results of their campaign within days or even hours; at the same time, they enhance the user experience by facilitating search and commerce decisions. The enhancement of the search experience provided by online advertising represents a key example of the welfare-increasing role played by search agents for time-constrained consumers [66] . Originally, the only form of online advertising available was in the form of banner advertisements (ads): the owner of a website and the advertiser would agree on a payment to display the ad a fixed number of times. In the last decade, the most popular advertising method has become sponsored search, which represents a very profitable market for search engines. The idea behind sponsored search is that, for queries with commercial interest (e.g., "digital camera"), Google, Yahoo!, Bing, and other search engines allow a certain number of ads to be displayed on the top or on the side of the search (organic) results. Typically, there are up to three links above the organic results (these are the mainline slots), and up to eight links on the right side the organic results (sidebar slots). The main advantage of such ads is that an advertiser is displaying his ad to users who have expressed interest for the specific keywords included in the query and are therefore more likely to be interested in his product. The selection of the ads to be displayed is done by means of an auction, the main ingredients of which are described below. There are three different charging schemes that can be considered for the selected ads: (1) the Pay-Per-Impression (PPI) model, where each advertiser is charged every time his ad is displayed, (2) the Pay-Per-Click (PPC) model, where the advertiser is charged only when a user clicks on the ad, (3) the Pay-Per-Transaction (PPT) model, where the advertiser is charged when the click results in a conversion, i.e., a purchase by the user. The most popular model that is being used in almost all sponsored search auctions is the Pay-Per-Click model, and our survey will focus on this. In order to design a sponsored search auction, we first need a rule that ranks the bidders and thus determines the allocations of the available slots to the ads. The ranking rule has to compute a score for each bidder, and rank bidders in decreasing order, according to that score. Throughout the history of sponsored search auctions, the score has varied from being simply the bid of each bidder to being a function of the bid and possibly of other parameters, most notably of the Click-Through-Rate (CTR).
doi:10.1007/s10660-012-9094-8 fatcat:wcbacvez4fb63gzlet44gf5udm