Towards Better Models of Externalities in Sponsored Search Auctions

TL;DR

This paper develops new mathematical models for externalities in sponsored search auctions, balancing realism and analytical tractability, and analyzes their computational complexity and implications for mechanism design.

Contribution

It introduces a set of general formulations for modeling externalities in SSAs and provides comprehensive complexity and approximability results.

Findings

Complexity results for various models of externalities

Insights into the computational hardness of the problem

Discussion on mechanism design considerations

Abstract

Sponsored Search Auctions (SSAs) arguably represent the problem at the intersection of computer science and economics with the deepest applications in real life. Within the realm of SSAs, the study of the effects that showing one ad has on the other ads, a.k.a. externalities in economics, is of utmost importance and has so far attracted the attention of much research. However, even the basic question of modeling the problem has so far escaped a definitive answer. The popular cascade model is arguably too idealized to really describe the phenomenon yet it allows a good comprehension of the problem. Other models, instead, describe the setting more adequately but are too complex to permit a satisfactory theoretical analysis. In this work, we attempt to get the best of both approaches: firstly, we define a number of general mathematical formulations for the problem in the attempt to have a rich description of externalities in SSAs and, secondly, prove a host of results drawing a nearly complete picture about the computational complexity of the problem. We complement these approximability results with some considerations about mechanism design in our context.