Assessing Advertising Bids in Generalized-secondary Auctions for Improved Selection of Search Engine Keywords

As internet users query search engines, relevant advertisements accompany the search results. Advertisers bid for limited ad spots in a generalized-secondary auction employed by search engines. This paper uses publically-available data from Google to test strategies advertisers may use when deciding where and how much to bid for a keyword phrase. A predictive model of suggested bid price may provide knowledge of when a keyword phrase is too costly to bid on. Alternative strategies are discussed that focus the bidder on customer conversion rate and profitability instead of seeking to maximize click through rate. JEL Classification: D44, M37