Optimal reserve prices in weighted GSP auctions

Yang Sun; Yunhong Zhou; Xiaotie Deng

doi:10.1016/j.elerap.2014.02.003

Optimal reserve prices in weighted GSP auctions

Yang Sun
, Yunhong Zhou
, Xiaotie Deng

City University of Hong Kong

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

18 Citations (Scopus)

Abstract

Most search engines use the weighted Generalized Second Price (wGSP) auction to sell keyword-based text ads, generating billions of dollars of advertising revenue every year. Designing and implementing near-optimal reserve prices for these wGSP auctions are naturally important problems for both academia and industry. In this paper, we show how to calculate and implement the near-optimal reserve price of the wGSP mechanism in realistic settings. Unlike reserve prices in standard single-item auctions, optimal reserve prices in wGSP auctions are discriminatory, different even for advertisers bidding on the same keyword. The optimal reserve price results can be extended to support CPA/CPC/CPM¹ hybrid auctions. Our simulations indicate that setting a proper reserve price will transfer some bidder utility (payoff) to auctioneer utility, resulting in higher revenue for the search engine. We describe a practical methodology to implement optimal reserve prices in production systems. © 2014 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	178-187
Journal	Electronic Commerce Research and Applications
Volume	13
Issue number	3
DOIs	https://doi.org/10.1016/j.elerap.2014.02.003
Publication status	Published - May 2014

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Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Research Keywords

Generalized second price auction
Optimal auction
Reserve price
Sponsored search auction
Weighted GSP

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title = "Optimal reserve prices in weighted GSP auctions",

abstract = "Most search engines use the weighted Generalized Second Price (wGSP) auction to sell keyword-based text ads, generating billions of dollars of advertising revenue every year. Designing and implementing near-optimal reserve prices for these wGSP auctions are naturally important problems for both academia and industry. In this paper, we show how to calculate and implement the near-optimal reserve price of the wGSP mechanism in realistic settings. Unlike reserve prices in standard single-item auctions, optimal reserve prices in wGSP auctions are discriminatory, different even for advertisers bidding on the same keyword. The optimal reserve price results can be extended to support CPA/CPC/CPM1 hybrid auctions. Our simulations indicate that setting a proper reserve price will transfer some bidder utility (payoff) to auctioneer utility, resulting in higher revenue for the search engine. We describe a practical methodology to implement optimal reserve prices in production systems. {\textcopyright} 2014 Elsevier B.V. All rights reserved.",

keywords = "Generalized second price auction, Optimal auction, Reserve price, Sponsored search auction, Weighted GSP",

author = "Yang Sun and Yunhong Zhou and Xiaotie Deng",

note = "Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].",

year = "2014",

month = may,

doi = "10.1016/j.elerap.2014.02.003",

language = "English",

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pages = "178--187",

journal = "Electronic Commerce Research and Applications",

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T1 - Optimal reserve prices in weighted GSP auctions

AU - Sun, Yang

AU - Zhou, Yunhong

AU - Deng, Xiaotie

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

PY - 2014/5

Y1 - 2014/5

N2 - Most search engines use the weighted Generalized Second Price (wGSP) auction to sell keyword-based text ads, generating billions of dollars of advertising revenue every year. Designing and implementing near-optimal reserve prices for these wGSP auctions are naturally important problems for both academia and industry. In this paper, we show how to calculate and implement the near-optimal reserve price of the wGSP mechanism in realistic settings. Unlike reserve prices in standard single-item auctions, optimal reserve prices in wGSP auctions are discriminatory, different even for advertisers bidding on the same keyword. The optimal reserve price results can be extended to support CPA/CPC/CPM1 hybrid auctions. Our simulations indicate that setting a proper reserve price will transfer some bidder utility (payoff) to auctioneer utility, resulting in higher revenue for the search engine. We describe a practical methodology to implement optimal reserve prices in production systems. © 2014 Elsevier B.V. All rights reserved.

AB - Most search engines use the weighted Generalized Second Price (wGSP) auction to sell keyword-based text ads, generating billions of dollars of advertising revenue every year. Designing and implementing near-optimal reserve prices for these wGSP auctions are naturally important problems for both academia and industry. In this paper, we show how to calculate and implement the near-optimal reserve price of the wGSP mechanism in realistic settings. Unlike reserve prices in standard single-item auctions, optimal reserve prices in wGSP auctions are discriminatory, different even for advertisers bidding on the same keyword. The optimal reserve price results can be extended to support CPA/CPC/CPM1 hybrid auctions. Our simulations indicate that setting a proper reserve price will transfer some bidder utility (payoff) to auctioneer utility, resulting in higher revenue for the search engine. We describe a practical methodology to implement optimal reserve prices in production systems. © 2014 Elsevier B.V. All rights reserved.

KW - Generalized second price auction

KW - Optimal auction

KW - Reserve price

KW - Sponsored search auction

KW - Weighted GSP

UR - https://www.scopus.com/pages/publications/84901608679

UR - https://www.scopus.com/pages/publications/84901608679#tab=impact

U2 - 10.1016/j.elerap.2014.02.003

DO - 10.1016/j.elerap.2014.02.003

M3 - RGC 21 - Publication in refereed journal

SN - 1567-4223

VL - 13

SP - 178

EP - 187

JO - Electronic Commerce Research and Applications

JF - Electronic Commerce Research and Applications

IS - 3

ER -

Optimal reserve prices in weighted GSP auctions

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Research Keywords

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