Title: Equilibrium analysis of dynamic bidding in sponsored search auctions

Authors: Yevgeniy Vorobeychik, Daniel M. Reeves

Addresses: Computer Science and Engineering, University of Michigan, 2260 Hayward St, Ann Arbor MI 48109-2121, USA. ' Yahoo! Research, 111 W 40th St, 17th Floor, New York NY 10018, USA

Abstract: We analyse symmetric pure strategy equilibria in dynamic sponsored search auction games using simulations, restricting the strategies to several in a class of greedy bidding strategies introduced by Cary et al. We show that a particular convergent strategy, |balanced bidding|, also exhibits high stability to deviations in the dynamic setting. On the other hand, a cooperative strategy which yields high payoffs to all players is not sustainable in equilibrium play. Additionally, we analyse a repeated game in which each stage is a static complete information sponsored search game. In this setting, we demonstrate a collusion strategy which yields high payoffs to all players and empirically show it to be sustainable over a range of settings. Finally, we show how a collusive strategy profile can arise even in the case of incomplete information.

Keywords: sponsored search; game theory; online auctions; strategic bidding; electronic business; e-business; equilibrium analysis; auction games; simulation; greedy bidding strategies; collusion strategy.

DOI: 10.1504/IJEB.2008.018071

International Journal of Electronic Business, 2008 Vol.6 No.2, pp.172 - 193

Published online: 28 Apr 2008 *

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