Marketing Agencies and Collusive Bidding 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 collusive bidding can emerge from bid delegation to a common marketing agency and how this undermines both revenues and efficiency of both the generalized second price auction (GSP, used by Google and Microsoft-Yahoo!) and the VCG mechanism (used by Facebook). Surprisingly, we find that both in terms of revenues and efficiency the GSP auction is outperformed by the VCG, despite the latter mechanism is known to perform poorly under collusive bidding. We also propose a criterion to detect collusion in the data.