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Theoretical and experimental investigations of the performance of keyword auction mechanisms
Author(s) -
Fukuda Emiko,
Kamijo Yoshio,
Takeuchi Ai,
Masui Michiharu,
Funaki Yukihiko
Publication year - 2013
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12026
Subject(s) - vickrey–clarke–groves auction , vickrey auction , mathematical economics , generalized second price auction , revenue equivalence , revenue , nash equilibrium , mechanism (biology) , economics , microeconomics , mechanism design , auction theory , computer science , econometrics , common value auction , physics , accounting , quantum mechanics
Two keyword auction mechanisms, the Generalized Second‐Price auction (GSP) and the Vickrey‐Clarke‐Groves mechanism (VCG), were compared theoretically and experimentally. The former is widely used in practice; the latter is not, but it has a dominant strategy equilibrium where all participants bid their true values. In the theoretical investigation, by applying the “locally envy‐free Nash equilibrium” to the VCG, we found that the allocations are efficient and that upper and lower bounds of the auctioneer's revenue coincide in the two mechanisms. A laboratory experiment, in which the revenues and efficiencies were similar in both mechanisms, supported this result.