Revenue optimization in the generalized second-price auction

Abstract

We consider the optimization of revenue in advertising auctions based on the generalized second-price (GSP) paradigm, which has become a de facto standard. We examine several different GSP variants (including squashing and different types of reserve prices), and consider how to set their parameters optimally. One intriguing finding is that charging each advertiser the same per-click reserve price ("unweighted reserve prices") yields dramatically more revenue than the quality-weighted reserve prices that have become common practice. This result is robust, arising both from theoretical analysis and from two different kinds of computational experiments. We also identify a new GSP variant that is revenue optimal in restricted settings. Finally, we study how squashing and reserve prices interact, and how equilibrium selection affects the revenue of GSP when features such as reserves or squashing are applied.

Optimising trade-offs among stakeholders in ad auctions

“…We now investigate such ad-limited auctions, making the simplifying assumption that all J auctions are single item auctions. In contrast to previous work which has suggested that a per-impression reserve is a poor tool for increasing revenue or trading-off between revenue and other objectives [Roberts et al 2013;Thompson and Leyton-Brown 2013], this analysis shows that the use of such a reserve is the optimal way of controlling the number of ads shown. THEOREM 4.6.…”

“…Nevertheless, Theorem 3.1 can at the very least be applied to optimizing linear approximation of the φ i . Thompson and Leyton-Brown [2013] observed that φ i is in fact linear for uniform value distributions. In fact, many Beta distributions are also close to linear for much of their range.…”

“…We characterize the design of the optimal option with this constraint. Interestingly, the optimal way to ensure this constraint is satisfied through a per-impression reserve, which previous work has identified as a poor tool from a pure revenue maximization standpoint [Roberts et al 2013; Thompson and Leyton-Brown 2013].…”

“…Lahaie and Pennock [2007] proposed the idea of a squashing parameter to improve revenue, and Lahaie and McAfee [2011] showed that it can increase welfare as well. Thompson and Leyton-Brown [2013] studied a variety of ways of increasing revenue, including through a reserve of the optimal form.…”

Combining guaranteed and spot markets in display advertising: Selling guaranteed page views with stochastic demand

“…Mechanism design for online advertising has been extensively studied in the literature. Many discussions have been centered around search advertising auctions, such as the generalized first-price auction (Edelman et al, 2007), the generalized second-price auction (Edelman et al, 2007;Lahaie and McAfee, 2011;Lahaie and Pennock, 2007;Varian, 2007), the Vickrey-Clarke-Groves (VCG) auction (Parkes, 2007;Varian, 2009;Varian and Harris, 2014) and the optimal auction (Feldman et al, 2010;Ostrovsky and Schwarz, 2011;Thompson and Leyton-Brown, 2013) which extends Myerson's optimal auction for a single indivisible good (Myerson, 1981). Most of these studies on advertising auctions examine the properties of an auction model with respect to incentive compatibility, expected revenue, individual rationality, and computational complexity.…”