Characterizing Optimal Syndicated Sponsored Search Market Design

The analysis to date of sponsored search auctions, originally conducted by Varian and independently by Aggarwal et al., has yet to describe more recent developments such as the emergence of interacting advertising exchanges. This paper assess the significance of such phenomena. Building on Gonen and Vassilvitskii’s model of sponsored search with reserve prices we depict advertising networks as double-sided sponsored search markets with advertisers on one side, syndicators on the other, and the search engine as the market maker. We call this market the syndicated sponsored search market. We focus our attention on investigating the impact of the common assumption of separability on the optimal syndicated sponsored search market. Though the optimal sponsored search market under the separability assumption follows from a Myerson-like mechanism, when the separability assumption is removed an impossibility is revealed. We present a full characterization of the truthful syndicated sponsored search market, showing VCG-like prices in the optimal market and indicating that no truthful budget-balance/surplus syndicated sponsored search market can be designed if separability does not exist. Characterizing truthful syndicated sponsored search markets requires the use of a relatively new set of tools, reductions that preserve economic properties. This paper utilizes two such reductions; a truth-preserving reduction and a non-affine preserving reduction. The truth-preserving reduction is used to reduce the syndicated sponsored search market to a special case of a subadditive combinatorial auction to allow us to make use of the impossibility result proved in [5]. Intuitively, our proof shows that truthful syndicated sponsored search markets, where separability is not assumed, are as hard to design as truthful subadditive combinatorial auctions with multi-minded payers. ∗Department of Management and Economics, The Open University, Email: [email protected]