Sponsored Search Auctions with Markovian Users

TL;DR

This paper introduces a Markovian user model for sponsored search auctions, providing a new algorithm for optimal ad assignment that differs from GSP, and proposes a truthful auction mechanism with desirable properties.

Contribution

It presents a novel Markovian user model and an algorithm for optimal ad assignment, along with a truthful auction mechanism based on VCG, improving upon traditional GSP assumptions.

Findings

Optimal assignment differs from GSP under the new model

The proposed auction is truthful and has desirable properties

Algorithm efficiently computes the best ad placement

Abstract

Sponsored search involves running an auction among advertisers who bid in order to have their ad shown next to search results for specific keywords. Currently, the most popular auction for sponsored search is the "Generalized Second Price" (GSP) auction in which advertisers are assigned to slots in the decreasing order of their "score," which is defined as the product of their bid and click-through rate. In the past few years, there has been significant research on the game-theoretic issues that arise in an advertiser's interaction with the mechanism as well as possible redesigns of the mechanism, but this ranking order has remained standard. From a search engine's perspective, the fundamental question is: what is the best assignment of advertisers to slots? Here "best" could mean "maximizing user satisfaction," "most efficient," "revenue-maximizing," "simplest to interact with," or a combination of these. To answer this question we need to understand the behavior of a search engine user when she sees the displayed ads, since that defines the commodity the advertisers are bidding on, and its value. Most prior work has assumed that the probability of a user clicking on an ad is independent of the other ads shown on the page. We propose a simple Markovian user model that does not make this assumption. We then present an algorithm to determine the most efficient assignment under this model, which turns out to be different than that of GSP. A truthful auction then follows from an application of the Vickrey-Clarke-Groves (VCG) mechanism. Further, we show that our assignment has many of the desirable properties of GSP that makes bidding intuitive. At the technical core of our result are a number of insights about the structure of the optimal assignment.