Position Auctions and Non-uniform Conversion Rates

The generalized second-price auction (GSP) is used predominantly for sponsored search by leading search engines like Google, MSN-Live Search and Yahoo!. Previous results showed, in a model where all clicks on an ad gain the advertiser the same benefit, that GSP maximizes the social welfare in equilibrium. In practice, however, the probability that a click will convert to a sale for the advertiser depends on the position (a.k.a. slot) of the ad on the search results page. We support this observation by empirical results collected in MSN-Live adCenter. We then prove that with non-uniform conversion rates GSP does not admit an optimal equilibrium; none-the-less, we are still able to bound the incurred loss. Finally, we devise an incremental change in the GSP mechanism that achieves socially-optimal results in equilibrium, while maintaining the same interface for advertisers and the same pay-per-click business model.