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Sponsored search equilibria for conservative bidders

By Renato Paes Leme and Éva Tardos


Generalized Second Price Auction and its variants has been the main mechanism used by search companies to auction positions for sponsored search links. In this paper we study the social welfare of the Nash equilibria of this game. It is known that socially optimal Nash equilibria exists, and its not hard to see that in the general case there are also very bad equilibria: the gap between a Nash equilibrium and the socially optimal can be arbitrarily large. In this paper, we consider the case when the bidders are conservative, in the sense that they do not bid above their own valuations. We show that a certain analog of the trembling hand equilibria are equilibria with conservative bidders. Our main result is to show that for conservative bidders the worse Nash equilibrium and the social optimum are within a factor of the golden ratio, 1.618

Topics: Keyword Auctions
Year: 2009
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