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Decision Support Systems
Volume 43, Issue 1, February 2007, Pages 192-198
Mobile Commerce: Strategies, Technologies, and Applications
 
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doi:10.1016/j.dss.2006.08.008    How to Cite or Link Using DOI (Opens New Window)
Copyright © 2006 Elsevier B.V. All rights reserved.

Strategic bidder behavior in sponsored search auctions

Benjamin Edelmana, E-mail The Corresponding Author and Michael Ostrovskyb, Corresponding Author Contact Information, E-mail The Corresponding Author

aDepartment of Economics, Harvard University, United States bGraduate School of Business, Stanford University, United States

Received 23 June 2006; 
revised 18 August 2006; 
accepted 21 August 2006. 
Available online 27 September 2006.

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Abstract

We examine sponsored search auctions run by Overture (now part of Yahoo!) and Google and present evidence of strategic bidder behavior in these auctions. Between June 15, 2002, and June 14, 2003, we estimate that Overture's revenue might have been higher if it had been able to prevent this strategic behavior. We present an alternative mechanism that could reduce the amount of strategizing by bidders, raise search engines' revenues, and increase the efficiency of the market. We conclude by showing that strategic behavior has not disappeared over time; it remains present on both search engines.

Keywords: Market design; Internet advertising

Article Outline

1. Introduction
2. Historical evidence and motivating examples
3. Revenue losses
3.1. Theoretical example
3.2. Empirical analysis: methods and implementation
3.3. Empirical analysis: results
4. Strategic behavior: current evidence from ranking data
5. Conclusions
Acknowledgements
References
Vitae


Decision Support Systems
Volume 43, Issue 1, February 2007, Pages 192-198
Mobile Commerce: Strategies, Technologies, and Applications
 
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