5- Keyword auctions Flashcards
What is the measure of success of pay-per-click (PPC) advertising?
Click-through-rate (CTR)
What is the formula for click-through-rate (CTR)?
♯users clicking on ad/♯users viewing ad
Describe a Generalised Second-Price auction (GSP)
-Each advertiser places a bid
-Bids are ranked by value
-Each bidder pays the next highest bid for each click
In a GSP auction, how does the number of bidders relate to the links displayed?
There is always at least 1 more bidder than the number of links awarded. If there are only 3 bidders then only 2 sponsored links are displayed.
What is the net payoff for a click?
Valuation for a click - price per click
What is the net payoff per hour of a position?
Net payoff per click x clicks per hour
What problem did Google identify with the base GSP auction?
Click frequency depends on advertiser, but if click frequency is low then Google’s revenue is low
What are the 4 determinants of quality score?
-CTR
-ad relevance
-user experience (UX)
-other things (secret sauce)
What is the Final score of a bidder?
Final score = Bid x Quality score
How are bidders charged when pricing with quality scores?
Advertisers are ranked according to the final score. Charge each advertiser the lowest price/click p such that final score is greater than next highest
What 3 simplifying assumptions do we use to analyse GSP auctions?
-Valuations are commonly known: eventually, advertisers learn all the relevant information.
-Stable bids must form a Nash equilibrium of the
simultaneous-move, one shot game of complete information.
-We use simple strategies
Describe a Simple strategy
-Opponent is currently beating your bid
-Player slightly increases bid such that their price and position is the same but opponent must pay more
-Opponent retaliates by bidding slightly lower to swap ranks
When will bidders use a Simple strategy?
If the Simple strategy improves their payoff
Define Long run equilibrium
An equilibrium of the simultaneous-move game induced by GSP is locally envy-free if a player cannot improve her payoff by exchanging bids with the bidder one position above her
What are the 2 conditions for Long run equilibrium?
-Nash equilibrium
-Envy freeness
What is the equation/inequality for Long run equilibrium?
αᵢv₉₍ᵢ₎ - pᵢ ≥ αᵢ₋₁ - v₉₍ᵢ₎ - pᵢ₋₁
When is an assignment stable?
An assignment (µ) of price p is stable if there’s no advertiser i and a position k such that:
µ(i) ≠ k (k not assigned to i)
αk ×vᵢ > (i’s net payoff under µ) + (k’s net payoff under µ)
What is the main difference between equilibrium and stability?
In equilibrium only bidders have to be better off, whereas for stability the seller’s payoff matters too
What is the relation between locally envy-free equilibria and stability?
The outcome of any locally envy-free equilibrium in the GSP auction is a stable assignment.
Describe a Generalised English auction (GEA)
-Price clock starts at 0 and increases over time
-Advertisers choose price at which to drop out which will be their bid
-Advertisers ranked on bid and pay the bid of bidder just below them
What is the perfect Bayesian equilibrium proposition for Generalised English auctions?
There is a unique equilibrium of the generalized
English auction, where an advertiser with valuation v drops out at price p*
What is the formula for perfect Bayesian equilibrium price p*?
p* = v - αᵢ/αᵢ₋₁(v-bᵢ₊₁)
What is the relationship between GEA equilibrium payoffs and VCG payoffs?
Equilibrium payoffs of GEA = VCG payoffs
