Question
To sell ads online, Google uses an auction procedure called the generalized second price (GSP) auction. In this auction, the items for sale are the
To sell ads online, Google uses an auction procedure called the generalized second price (GSP) auction. In this auction, the items for sale are the "slots" for ads that appear before or beside a user's search results. A bidder's (an advertiser's) value in this auction is its payoff every time a user clicks on its ad. Advertisers place a single bid based on this value. The advertisers are ranked according to their bids; the top bidder is awarded the top slot, the second bidder is awarded the second slot, and so on until all slots have been awarded. (Higher slots are associated with more clicks per 2 day and so are more valuable to bidders.) The price paid per click is determined by the next highest bid: the bidder that won the top slot pays the bid of the bidder that won the second slot, the bidder that won the second slot pays the bid of the bidder that won the third slot, etc., and the bidder that won the last slot pays the bid of the highest bidder that didn't win a slot.
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