Refinement of symmetrical Nash equilibrium for generalized second-price mechanism in sponsored search advertising

Linjing Li, Daniel Zeng

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Sponsored search advertising is the most prevailing online advertising instrument, also it is the most important and fastest-growing revenue source for auctioneers. In this paper, we propose a new type of equilibrium refinement concept named "stable Nash equilibrium" for this auction game. We illustrate that the set of all stable Nash equilibria (STNE) of a GSP mechanism keyword auction can be efficiently calculated by a recursive procedure. STNE is either the same as the set of the well-known symmetrical Nash equilibrium or a proper subset of it. These findings free both auctioneers and advertisers from complicated strategic thinking. The revenue of a GSP auction on STNE is at least the same as that of the classical V CG mechanism and can be used as a benchmark for evaluating other mechanisms. At the same time, STNE provides advertisers a simple yet effective and stable strategy.

Original languageEnglish (US)
Title of host publicationProceedings of 2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010
Pages457-462
Number of pages6
DOIs
StatePublished - Oct 15 2010
Event2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010 - QingDao, China
Duration: Jul 15 2010Jul 17 2010

Publication series

NameProceedings of 2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010

Other

Other2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010
CountryChina
CityQingDao
Period7/15/107/17/10

ASJC Scopus subject areas

  • Information Systems and Management
  • Management Science and Operations Research

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  • Cite this

    Li, L., & Zeng, D. (2010). Refinement of symmetrical Nash equilibrium for generalized second-price mechanism in sponsored search advertising. In Proceedings of 2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010 (pp. 457-462). [5551604] (Proceedings of 2010 IEEE International Conference on Service Operations and Logistics, and Informatics, SOLI 2010). https://doi.org/10.1109/SOLI.2010.5551604