Abstract : We investigate the generalized second price auction (GSP), a new auction mechanism, which is used by Internet search engines to sell online advertising. GSP is tailored to its unique environment, and neither the mechanism nor the environment have previously been studied in the auction literature. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) auction, its properties are very di erent. In particular, unlike the VCG auction, 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 in dynamic environment we describe the generalized English auction that corresponds to the GSP and show that it has a unique equilibrium. This is an ex post equilibrium that results in the same payo s to all players as the dominant strategy equilibrium of VCG. Authors : Benjamin Edelman, Harvard University; Michael Ostrovsky, Stanford University; Michael Schwarz, U.C. Berkeley and NBER | Source : Institute of Business and Economic Research Department of Economics, U.C. Berkeley
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