Question 9 [10pts]: Sponsored search market Suppose a search engine has two ad slots that it can sell. Slot a has a click through rate of 4 and slot b has a click through rate of 3. There are three advertisers who are interested in these slots. Advertiser x values clicks at 4 per click, advertiser y values clicks at 3 per click, and advertiser z values clicks at 1 per click. (a) Suppose that the search engine runs the VCG Procedure to allocate slots. What assignment of slots will occur and what prices will the advertisers pay? Give an explanation for your answer. (b) Now the search engine is considering the creation of a third ad slot which will have a click through rate of 2. Let's call this new ad slot c. Suppose that search engine does create this slot and again uses the VCG Procedure to allocate slots. What assignment of slots will occur and what prices will the advertisers pay? Give an explanation for your answer. (c) What revenue will the search engine receive from the VCG Procedure in parts (a) and (b)? If you were running the search engine, given this set of advertisers and slots, and could choose whether to create slot c or not, what would you do? Why? (In answering this question assume that you have to use the VCG Procedure to allocate any slots you create.) Question 9 [10pts]: Sponsored search market Suppose a search engine has two ad slots that it can sell. Slot a has a click through rate of 4 and slot b has a click through rate of 3. There are three advertisers who are interested in these slots. Advertiser x values clicks at 4 per click, advertiser y values clicks at 3 per click, and advertiser z values clicks at 1 per click. (a) Suppose that the search engine runs the VCG Procedure to allocate slots. What assignment of slots will occur and what prices will the advertisers pay? Give an explanation for your answer. (b) Now the search engine is considering the creation of a third ad slot which will have a click through rate of 2. Let's call this new ad slot c. Suppose that search engine does create this slot and again uses the VCG Procedure to allocate slots. What assignment of slots will occur and what prices will the advertisers pay? Give an explanation for your answer. (c) What revenue will the search engine receive from the VCG Procedure in parts (a) and (b)? If you were running the search engine, given this set of advertisers and slots, and could choose whether to create slot c or not, what would you do? Why? (In answering this question assume that you have to use the VCG Procedure to allocate any slots you create.)
