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Unformatted text preview: Revenue Analysis of a Family of Ranking Rules for Keyword Auctions Sebastien Lahaie School of Engineering and Applied Sciences Harvard University, Cambridge, MA 02138 email@example.com David M. Pennock Yahoo! Research New York, NY 10011 firstname.lastname@example.org ABSTRACT Keyword auctions lie at the core of the business models of todays leading search engines. Advertisers bid for place- ment alongside search results, and are charged for clicks on their ads. Advertisers are typically ranked according to a score that takes into account their bids and potential click- through rates. We consider a family of ranking rules that contains those typically used to model Yahoo! and Googles auction designs as special cases. We find that in general neither of these is necessarily revenue-optimal in equilib- rium, and that the choice of ranking rule can be guided by considering the correlation between bidders values and click-through rates. We propose a simple approach to deter- mine a revenue-optimal ranking rule within our family, tak- ing into account effects on advertiser satisfaction and user experience. We illustrate the approach using Monte-Carlo simulations based on distributions fitted to Yahoo! bid and click-through rate data for a high-volume keyword. Categories and Subject Descriptors J.4 [ Computer Applications ]: Social and Behavioral Sci- ences Economics General Terms Economics, Theory Keywords sponsored search, search engines, keyword auctions 1. INTRODUCTION Major search engines like Google, Yahoo!, and MSN sell advertisements by auctioning off space on keyword search results pages. For example, when a user searches the web for This work was done while the author was at Yahoo! Re- search. Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. To copy otherwise, to republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. EC07, June 1 1 1 5 , 2007, San Diego, California, USA. Copyright 2007 ACM 978-1-59593-653-0/07/0006 ... $ 5.00. iPod, the highest paying advertisers (for example, Apple or Best Buy) for that keyword may appear in a separate sponsored section of the page above or to the right of the algorithmic results. The sponsored results are displayed in a format similar to algorithmic results: as a list of items each containing a title, a text description, and a hyperlink to a web page. Generally, advertisements that appear in a higher position on the page garner more attention and more clicks from users. Thus, all else being equal, advertisers prefer higher positions to lower positions....
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