4 research outputs found
Capacity constraints and the inevitability of mediators in adword auctions
One natural constraint in the sponsored search advertising framework arises
from the fact that there is a limit on the number of available slots,
especially for the popular keywords, and as a result, a significant pool of
advertisers are left out. We study the emergence of diversification in the
adword market triggered by such capacity constraints in the sense that new
market mechanisms, as well as, new for-profit agents are likely to emerge to
combat or to make profit from the opportunities created by shortages in
ad-space inventory. We propose a model where the additional capacity is
provided by for-profit agents (or, mediators), who compete for slots in the
original auction, draw traffic, and run their own sub-auctions. The quality of
the additional capacity provided by a mediator is measured by its {\it fitness}
factor. We compute revenues and payoffs for all the different parties at a {\it
symmetric Nash equilibrium} (SNE) when the mediator-based model is operated by
a mechanism currently being used by Google and Yahoo!, and then compare these
numbers with those obtained at a corresponding SNE for the same mechanism, but
without any mediators involved in the auctions. Such calculations allow us to
determine the value of the additional capacity. Our results show that the
revenue of the auctioneer, as well as the social value (i.e. efficiency),
always increase when mediators are involved; moreover even the payoffs of {\em
all} the bidders will increase if the mediator has a high enough fitness. Thus,
our analysis indicates that there are significant opportunities for
diversification in the internet economy and we should expect it to continue to
develop richer structure, with room for different types of agents and
mechanisms to coexist.Comment: 6 page
For-profit mediators in sponsored search advertising
A mediator is a well-known construct in game theory, and is an entity that
plays on behalf of some of the agents who choose to use its services, while the
rest of the agents participate in the game directly. We initiate a game
theoretic study of sponsored search auctions, such as those used by Google and
Yahoo!, involving {\em incentive driven} mediators. We refer to such mediators
as {\em for-profit} mediators, so as to distinguish them from mediators
introduced in prior work, who have no monetary incentives, and are driven by
the altruistic goal of implementing certain desired outcomes. We show that in
our model, (i) players/advertisers can improve their payoffs by choosing to use
the services of the mediator, compared to directly participating in the
auction; (ii) the mediator can obtain monetary benefit by managing the
advertising burden of its group of advertisers; and (iii) the payoffs of the
mediator and the advertisers it plays for are compatible with the incentive
constraints from the advertisers who do dot use its services. A simple
intuition behind the above result comes from the observation that the mediator
has more information about and more control over the bid profile than any
individual advertiser, allowing her to reduce the payments made to the
auctioneer, while still maintaining incentive constraints. Further, our results
indicate that there are significant opportunities for diversification in the
internet economy and we should expect it to continue to develop richer
structure, with room for different types of agents to coexist.Comment: 6 page
Capacity as a Fundamental Metric for Mechanism Design in the Information Economy
The auction theory literature has so far focused mostly on the design of
mechanisms that takes the revenue or the efficiency as a yardstick. However,
scenarios where the {\it capacity}, which we define as \textit{``the number of
bidders the auctioneer wants to have a positive probability of getting the
item''}, is a fundamental concern are ubiquitous in the information economy.
For instance, in sponsored search auctions (SSA's) or in online ad-exchanges,
the true value of an ad-slot for an advertiser is inherently derived from the
conversion-rate, which in turn depends on whether the advertiser actually
obtained the ad-slot or not; thus, unless the capacity of the underlying
auction is large, key parameters, such as true valuations and
advertiser-specific conversion rates, will remain unknown or uncertain leading
to inherent inefficiencies in the system. In general, the same holds true for
all information goods/digital goods. We initiate a study of mechanisms, which
take capacity as a yardstick, in addition to revenue/efficiency. We show that
in the case of a single indivisible item one simple way to incorporate capacity
constraints is via designing mechanisms to sell probability distributions, and
that under certain conditions, such optimal probability distributions could be
identified using a Linear programming approach. We define a quantity called
{\it price of capacity} to capture the tradeoff between capacity and
revenue/efficiency. We also study the case of sponsored search auctions.
Finally, we discuss how general such an approach via probability spikes can be
made, and potential directions for future investigations.Comment: 12 page
Diversification in the Internet Economy:The Role of For-Profit Mediators
We investigate market forces that would lead to the emergence of new classes
of players in the sponsored search market. We report a 3-fold diversification
triggered by two inherent features of the sponsored search market, namely,
capacity constraints and collusion-vulnerability of current mechanisms. In the
first scenario, we present a comparative study of two models motivated by
capacity constraints - one where the additional capacity is provided by
for-profit agents, who compete for slots in the original auction, draw traffic,
and run their own sub-auctions, and the other, where the additional capacity is
provided by the auctioneer herself, by essentially acting as a mediator and
running a single combined auction. This study was initiated by us in
\cite{SRGR07}, where the mediator-based model was studied. In the present work,
we study the auctioneer-based model and show that this model seems inferior to
the mediator-based model in terms of revenue or efficiency guarantee due to
added capacity. In the second scenario, we initiate a game theoretic study of
current sponsored search auctions, involving incentive driven mediators who
exploit the fact that these mechanisms are not collusion-resistant. In
particular, we show that advertisers can improve their payoffs by using the
services of the mediator compared to directly participating in the auction, and
that the mediator can also obtain monetary benefit, without violating incentive
constraints from the advertisers who do not use its services. We also point out
that the auctioneer can not do very much via mechanism design to avoid such
for-profit mediation without losing badly in terms of revenue, and therefore,
the mediators are likely to prevail.Comment: 20 pages, subsumes arXiv:0707.105