On the Equilibria and Efficiency of the GSP Mechanism in Keyword Auctions with Externalities

In the increasingly important market of online search advertising, a multitude of parameters affect the performance of advertising campaigns and their ability to attract users’ attention enough to produce clicks. Thus far, the majority of the relevant literature assumed an advertisement’s probability of receiving a click to be dependent on the advertisement’s quality and its position in the sponsored search list, but independent of the other advertisements shown on the same webpage. We examine a promising new model [1, 16] that incorporates the externalities effect based on the probabilistic behavior of a typical user. We focus on the Generalized Second Price mechanism used in practice and examine the Nash equilibria of the model. We also investigate the performance of this mechanism under the new model by comparing the efficiency of its equilibria to the optimal efficiency.