1
$\begingroup$

Many ad servers running GSP auctions tend to charge a $0.01 increment on the second price. I was wondering if there was any theoretical basis for this, or is it just a way for ad servers to make a little extra money at the expense of advertisers?

Although it probably wouldn't have much effect on incentives in practice, it seems that doing this breaks incentive compatibility in a true Vickrey auction, and breaks the equilibrium properties of a GSP auction.

I have heard the case made that this is a tie breaking rule, in which case what do you do when two bidders bid the exact same amount? You can't charge $0.01 extra because it would exceed their maximum bid. In which case this doesn't address the breaking of incentive compatibility.

Thanks

$\endgroup$
2
  • $\begingroup$ Forgive my ignorance of these types of auctions in the ad world, but what exactly do you mean "charges a .01 increment?" Do you mean it adds one cent to the second price, and charges the winner that sum? Separately, I suppose it's worth pointing out that GSP auctions aren't actually incentive compatible, so there's no direct fear of losing that property. $\endgroup$
    – AndrewC
    Commented Jun 19, 2018 at 21:12
  • $\begingroup$ Yes, that's what I mean. If there are two bidders A and B, and A bids \$8 while B bids \$5, bidder A will win and pay \$5.01. And GSP auctions may not be incentive compatible, but their Nash equilibrium properties would be broken as far as I can tell. $\endgroup$
    – rojmor
    Commented Jun 20, 2018 at 9:19

0

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Browse other questions tagged or ask your own question.