Simulation-Based Game Theoretic Analysis of Keyword Auctions with Low-Dimensional Bidding Strategies
We perform a simulation-based analysis of keyword auctions modeled as one-shot games of incomplete information to study a series of mechanism design questions. Our first question addresses the degree to which incentive compatibility fails in generalized second-price (GSP) auctions. Our results suggest that sincere bidding in GSP auctions is a strikingly poor strategy and a poor predictor of equilibrium outcomes. We next show that the rank-by-revenue mechanism is welfare optimal, corroborating past results. Finally, we analyze profit as a function of auction mechanism under a series of alternative settings. Our conclusions coincide with those of Lahaie and Pennock  when values and quality scores are strongly positively correlated: in such a case, rank-by-bid rules are clearly superior. We diverge, however, in showing that auctions that put little weight on quality scores almost universally dominate the pure rank-by-revenue scheme.
PDF Link: /papers/09/p583-vorobeychik.pdf
AUTHOR = "Yevgeniy Vorobeychik
TITLE = "Simulation-Based Game Theoretic Analysis of Keyword Auctions with Low-Dimensional Bidding Strategies",
BOOKTITLE = "Proceedings of the Twenty-Fifth Conference Annual Conference on Uncertainty in Artificial Intelligence (UAI-09)",
PUBLISHER = "AUAI Press",
ADDRESS = "Corvallis, Oregon",
YEAR = "2009",
PAGES = "583--590"