, Volume 58, Issue 4, pp 990–1021 | Cite as

Maintaining Equilibria During Exploration in Sponsored Search Auctions

  • John Langford
  • Lihong Li
  • Yevgeniy Vorobeychik
  • Jennifer WortmanEmail author


We introduce an exploration scheme aimed at learning advertiser click-through rates in sponsored search auctions with minimal effect on advertiser incentives. The scheme preserves both the current ranking and pricing policies of the search engine and only introduces one set of parameters which control the rate of exploration. These parameters can be set so as to allow enough exploration to learn advertiser click-through rates over time, but also eliminate incentives for advertisers to alter their currently submitted bids. When advertisers have much more information than the search engine, we show that although this goal is not achievable, incentives to deviate can be made arbitrarily small by appropriately setting the exploration rate. Given that advertisers do not alter their bids, we bound revenue loss due to exploration.


Sponsored search auctions Equilibrium analysis Exploration 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Börgers, T., Cox, I., Pesendorfer, M., Petricek, V.: Equilibrium bids in auctions of sponsored links: theory and evidence. Technical Report, University of Michigan (2007) Google Scholar
  2. 2.
    Bu, T.-M., Deng, X., Qi, Q.: Forward looking Nash equilibrium for keyword auction. Inf. Process. Lett. 105(2), 41–46 (2008) zbMATHCrossRefMathSciNetGoogle Scholar
  3. 3.
    Cary, M., Das, A., Edelman, B., Giotis, I., Heimerl, K., Karlin, A.R., Mathieu, C., Schwarz, M.: Greedy bidding strategies for keyword auctions. In: Eighth ACM Conference on Electronic Commerce (2007) Google Scholar
  4. 4.
    Edelman, B., Ostrovsky, M., Schwarz, M.: Internet advertising and the generalized second price auction: Selling billions of dollars worth of keywords. Am. Econ. Rev. 9(1), 242–259 (2007) Google Scholar
  5. 5.
    Even-Dar, E., Kearns, M., Wortman, J.: Sponsored search with contexts. In: The 3rd International Workshop on Internet and Network Economics (2007) Google Scholar
  6. 6.
    Ghosh, A., Nazerzadeh, H., Sundararajan, M.: Computing optimal bundles for sponsored search. In: The 3rd International Workshop on Internet and Network Economics (2007) Google Scholar
  7. 7.
    Gonen, R., Pavlov, E.: An incentive-compatible multi-armed bandit mechanism. In: The 26th Annual ACM Symposium on Principles of Distributed Computing (2007) Google Scholar
  8. 8.
    Heckman, J.: Sample selection bias as a specification error. Econometrica 47, 153–161 (1979) zbMATHCrossRefMathSciNetGoogle Scholar
  9. 9.
    Hoeffding, W.: Probability inequalities for sums of bounded random variables. J. Am. Stat. Assoc. 58(301), 13–30 (1963) zbMATHCrossRefMathSciNetGoogle Scholar
  10. 10.
    Lahaie, S.: An analysis of alternative slot auction designs for sponsored search. In: ACM Conference on Electronic Commerce (2006) Google Scholar
  11. 11.
    Lahaie, S., Pennock, D.M.: Revenue analysis of a family of ranking rules for keyword auctions. In: ACM Conference on Electronic Commerce (2007) Google Scholar
  12. 12.
    Liang, L., Qi, Q.: Cooperative or vindictive: Bidding strategies in sponsored search auction. In: The 3rd International Workshop on Internet and Network Economics (2007) Google Scholar
  13. 13.
    Pandey, S., Olston, C.: Handling advertisements of unknown quality in search advertising. In: Advances in Neural Information and Processing Systems 19, pp. 1065–1072 (2007) Google Scholar
  14. 14.
    Parkes, D., Sandholm, T.: Optimize-and-dispatch architecture for expressive ad auctions. Paper presented at the First Workshop on Sponsored Search Auctions, Vancouver, Canada, June, 2005 Google Scholar
  15. 15.
    Varian, H.: Position auctions. Int. J. Ind. Organ. 25(6), 1163–1178 (2007) CrossRefGoogle Scholar
  16. 16.
    Vorobeychik, Y., Reeves, D.: Equilibrium analysis of dynamic bidding in sponsored search auctions. Int. J. Electron. Bus. 6(2), 172–193 (2008) CrossRefGoogle Scholar
  17. 17.
    Wortman, J., Vorobeychik, Y., Li, L., Langford, J.: Maintaining equilibria during exploration in sponsored search auctions. In: The 3rd International Workshop on Internet and Network Economics (2007) Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • John Langford
    • 1
  • Lihong Li
    • 2
  • Yevgeniy Vorobeychik
    • 3
  • Jennifer Wortman
    • 3
    Email author
  1. 1.Yahoo! ResearchNew YorkUSA
  2. 2.Department of Computer ScienceRutgers UniversityPiscatawayUSA
  3. 3.Department of Computer and Information ScienceUniversity of PennsylvaniaPhiladelphiaUSA

Personalised recommendations