General auction mechanism for search advertising

ABSTRACT

In sponsored search, a number of advertising slots is available on a search results page, and have to be allocated among a set of advertisers competing to display an ad on the page. This gives rise to a bipartite matching market that is typically cleared by the way of an automated auction. Several auction mechanisms have been proposed, with variants of the Generalized Second Price (GSP) being widely used in practice. There is a rich body of work on bipartite matching markets that builds upon the stable marriage model of Gale and Shapley and the assignment model of Shapley and Shubik. This line of research offers deep insights into the structure of stable outcomes in such markets and their incentive properties. In this paper, we model advertising auctions in terms of an assignment model with linear utilities, extended with bidder and item specific maximum and minimum prices. Auction mechanisms like the commonly used GSP or the well-known Vickrey-Clarke-Groves (VCG) can be interpreted as simply computing a bidder-optimal stable matching in this model, for a suitably defined set of bidder preferences, but our model includes much richer bidders and preferences. We prove that in our model the existence of a stable matching is guaranteed, and under a non-degeneracy assumption a bidder-optimal stable matching exists as well. We give an algorithm to find such matching in polynomial time, and use it to design truthful mechanism that generalizes GSP, is truthful for profit-maximizing bidders, correctly implements features like bidder-specific minimum prices and position-specific bids, and works for rich mixtures of bidders and preferences. Our main technical contributions are the existence of bidder-optimal matchings and strategyproofness of the resulting mechanism, and are proved by induction on the progress of the matching algorithm.

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INDEX TERMS

Primary Classification:
  F. Theory of Computation
  F.2 ANALYSIS OF ALGORITHMS AND PROBLEM COMPLEXITY
      F.2.2 Nonnumerical Algorithms and Problems
          Subjects: Computations on discrete structures

General Terms:
Algorithms, Economics, Theory

Keywords:
game theory, sponsored search auctions, stable matchings