Title: On best-response bidding in GSP auctions
First published: 2008
Description: "How should players bid in keyword auctions such as those used by Google, Yahoo! and MSN? We model ad auctions as a dynamic game of incomplete information, so we can study the convergence and robustness properties of various strategies.  In particular, we consider best-response bidding strategies for a repeated auction on a single keyword, where in each round, each player chooses some optimal bid for the next round, assuming that the other players merely repeat their previous bids.  We focus on a strategy we call Balanced Bidding (bb).  If all players use the bb strategy, we show that bids converge to a bid vector that obtains in a complete information static model proposed by Edelman, Ostrovsky and Schwarz (2007).  We prove that convergence occurs with probability 1, and we compute the expected time until convergence"--National Bureau of Economic Research web site.
LC classification: HB1