Next Article in Journal
Reciprocity in Locating Contributions: Experiments on the Neighborhood Public Good Game
Previous Article in Journal
Divorce Costs and Marital Dissolution in a One-to-One Matching Framework With Nontransferable Utilities
Previous Article in Special Issue
An Equilibrium Analysis of Knaster’s Fair Division Procedure
Article Menu

Export Article

Open AccessArticle
Games 2013, 4(1), 125-143; doi:10.3390/g4010125

Two Pricing Mechanisms in Sponsored Search Advertising

Nanjing University of Finance and Economics, Nanjing, Jiangsu Province 210046, China
Zaragoza Logistics Center, C/Bari 55, Edificio N´ayade 5 (PLAZA) 50197, Zaragoza, Spain
College of Management, LIU Post, Brookville, New York 11548, USA
Author to whom correspondence should be addressed.
Received: 6 October 2012 / Revised: 29 January 2013 / Accepted: 19 February 2013 / Published: 20 March 2013
(This article belongs to the Special Issue Mechanism Design)
View Full-Text   |   Download PDF [580 KB, uploaded 20 March 2013]   |  


Sponsored search advertising has grown rapidly since the last decade and is now a significant revenue source for search engines. To ameliorate revenues, search engines often set fixed or variable reserve price to in influence advertisers’ bidding. This paper studies and compares two pricing mechanisms: the generalized second-price auction (GSP) where the winner at the last ad position pays the larger value between the highest losing bid and reserve price, and the GSP with a posted reserve price (APR) where the winner at the last position pays the reserve price. We show that if advertisers’ per-click value has an increasing generalized failure rate, the search engine’s revenue rate is quasi-concave and hence there exists an optimal reserve price under both mechanisms. While the number of advertisers and the number of ad positions have no effect on the selection of reserve price in GSP, the optimal reserve price is affected by both factors in APR and it should be set higher than GSP. View Full-Text
Keywords: Sponsored search advertising; symmetric Nash equilibrium; generalized failure rate; generalized second-price auction; reserve price Sponsored search advertising; symmetric Nash equilibrium; generalized failure rate; generalized second-price auction; reserve price

Figure 1

This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Yang, W.; Feng, Y.; Xiao, B. Two Pricing Mechanisms in Sponsored Search Advertising. Games 2013, 4, 125-143.

Show more citation formats Show less citations formats

Related Articles

Article Metrics

Article Access Statistics



[Return to top]
Games EISSN 2073-4336 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top