A dynamic model of bidding patterns in sponsored search auctions

A dynamic model of bidding patterns in sponsored search auctions

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Article ID: iaor20111948
Volume: 12
Issue: 1
Start Page Number: 1
End Page Number: 16
Publication Date: Mar 2011
Journal: Information Technology and Management
Authors:
Keywords: bidding
Abstract:

We develop an infinite horizon alternative‐move model of the unique second‐price sponsored search auction. We use this model to explain two distinguishable bidding patterns observed in our bidding data: bidding war cycle and stable bid. With examples, we show that only a small portion of the value generated may be extracted by search engines, if advertisers are engaged in bidding war cycles. Finally, we show the impact of auction design on advertiser bids and search engine revenue.

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