Evolutionary dynamics of bidding behavior in sponsored search advertising markets

Yong Yuan, Daniel Zeng, Jiesi Cheng

Research output: Contribution to conferencePaper

2 Scopus citations

Abstract

Sponsored search advertising markets are becoming unprecedentedly competitive with the influx of advertisers in large numbers, resulting in soaring keyword bid prices. Using evolutionary game theory, we analyze the evolutionary dynamics and stability of advertisers' cooperative and competitive behavior, aiming to help understand a range of real-world bidding dynamics including bid inflation. We conclude that unconditionally cooperative and competitive strategies are not stable. On the other hand, a set of "nice" and conditionally retaliatory strategies possesses the property of neutral evolutionary stability, and thus has the potential to promote the emergence of stable cooperation among competing advertisers. We further establish that using these strategies, advertisers can reciprocally decrease their bids and achieve the revenue equal to those under the VCG mechanism.

Original languageEnglish (US)
StatePublished - Jan 1 2010
Event20th Annual Workshop on Information Technologies and Systems, WITS 2010 - St. Louis, MO, United States
Duration: Dec 11 2010Dec 12 2010

Other

Other20th Annual Workshop on Information Technologies and Systems, WITS 2010
CountryUnited States
CitySt. Louis, MO
Period12/11/1012/12/10

Keywords

  • "Nice and Retaliatory" strategies
  • Asymmetric sequential auctions
  • Evolutionary game-theory
  • Neutral stable strategy
  • Sponsored search advertising

ASJC Scopus subject areas

  • Information Systems

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  • Cite this

    Yuan, Y., Zeng, D., & Cheng, J. (2010). Evolutionary dynamics of bidding behavior in sponsored search advertising markets. Paper presented at 20th Annual Workshop on Information Technologies and Systems, WITS 2010, St. Louis, MO, United States.