Cost of Conciseness in Sponsored Search Auctions

We study keyword auctions in a model where each advertiser has a value for every slot, which is not necessarily proportional to the number of clicks the advertiser expects to receive in that slot. In our model, advertisers need not only derive values from clicks on their ad, nor do they need to value clicks in all slots equally. This model encompasses a variety of advertising objectives, including conversions (user completion of some task such as a purchase) and branding (an increase in consumer awareness). Our goal is to understand the cost, in terms of efficiency, of reporting a single value to current bidding systems (modeled by the generalized second price auction), while actually having a full spectrum of values. Surprisingly, we find that there always exists an equilibrium with the VCG outcome if bidders report a single value to a version of the current bidding system that charges per impression. However, if bidders report a single value and are charged per click, this is not the case: an equilibrium need not exist, although efficient equilibria exist under restrictive assumptions on the valuations of bidders and clickthrough rates.