On Revenue Maximization in Second-Price Ad Auctions

Abstract. Most recent papers addressing the algorithmic problem of allocating advertisement space for keywords in sponsored search auctions assume that pricing is done via a first-price auction, which does not realistically model the Generalized Second Price (GSP) auction used in practice. Towards the goal of more realistically modeling these auctions, we introduce the Second-Price Ad Auctions problem, in which bidders’ payments are determined by the GSP mechanism. We show that the complexity of the Second-Price Ad Auctions problem is quite different than that of the more studied First-Price Ad Auctions problem. First, unlike the first-price variant, for which small constant-factor approximations are known, it is NP-hard to approximate the Second-Price Ad Auctions problem to any non-trivial factor. Second, this discrepancy extends even to the 0-1 special case that we call the Second-Price Matching problem (2PM). In particular, offline 2PM is APX-hard, and for online 2PM there is n...

• Type: Conference
• Year: 2009
• Where: ESA
• Authors: Yossi Azar, Benjamin E. Birnbaum, Anna R. Karlin, C. Thach Nguyen
• Keywords: Ad Auctions Problem, Algorithms, Competitive Ratios, ESA 2009, Second-Price Ad Auctions