Common Agency and Coordinated Bids in Sponsored Search Auctions

The transition of the advertisement market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions used to sell advertisement space on the web. We analyze how bidding delegation to a common marketing agency undermines both revenues and efficiency of the generalized second price auction, the format used by Google and Microsoft-Yahoo!. We characterize losses relative to the case of both full competition and agency-coordination under an alternative auction format (VCG mechanism). We propose a criterion to detect bid coordination and apply it to data from a major search engine.