VCG Auctions

Question 1

What problem does the VCG solve

Answer 1

Oftenly in auctions, items are sold in a combinations so the buyer has to buy what he doesnt wants in order to get what he wants

The VCG auction solves that.

Question 1

How does a VCG auction work

Answer 1

1. Each bidder submits their bid like a sealed-bid auction
2. The assignment (Who gets what) is the one that maximizes the social value
3. Each bidder pays the externality that they impose on other bidders

Question 2

What are the particularities of VCG auction

Answer 2

1. The auctioneer does not know the bidders valuations. she only has the bids
2. Bidders may not be forced to submit their true valuation
3. The dominant strategy is to submit a truthful valuation fonction

Question 3

Is the VCG auction frequently used?

Answer 3

No, because it is a hassle.

if there are 10 objects bidder would have to submit 1024 different valuatinos

too many amounts to compare

would take very long since we need to maximize every bidder’s social welfare

Question 4

Why is there an equilibrium problem with the keywords auctions

Answer 4

because the first spot is much more valuable then the 2nd spot so if the 1st bidder gets the 4$ spot then the 2nd bidder will drop down to the minimum and then the 1st bidder will also drop a bit and the war restarts

Question 5

What is the google model for keyword auctions (GSP)

Answer 5

1. Each advertiser places a bid
2. Bids are ranked
   - Highest bidder shown first
   - 2nd showed 2nd
   - etc.
3. There is always at least 1 more bidder than the number of links awarded

so if there’s only 3 bidders then only 2 links are awarded

Question 6

What did google do that changed the way they would make more money

Answer 6

For each ad google determines a quality score depending on

• CTR
• Ad relevance
• user experience and other things

so for each bidder the final score would equal to Bid x quality score

Question 7

What is the dominant strategy in GSP

Answer 7

Truth- tellings IS NOT a dominant strategy is GSP

the simple strategy is way more dominant. It consists of forcing out the bidder above me

Question 8

How is the equilibrium attained in GSP

Answer 8

is when a player cannot improve her payoff by exchanging bids with the bidder one position above her