Online Ad Auctions

The ad auctions used by major search engines all have a similar structure. Advertisers enter ad text, keywords, and bids into the system. When a user sends a query to the search engine, the system finds a set of ads with keywords that match the query and determines which ads to show and where to sho...

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Bibliographic Details
Published inThe American economic review Vol. 99; no. 2; pp. 430 - 434
Main Author Varian, Hal R.
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.05.2009
Subjects
Advertising expenditures
Advertising rates
Advertising revenue
Auctions
Bids
Cost functions
Equilibrium
Keywords
Local advertising
Online advertising
Online Advertising Markets
Revenue
Search engines
Sponsored search
Studies
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Summary:The ad auctions used by major search engines all have a similar structure. Advertisers enter ad text, keywords, and bids into the system. When a user sends a query to the search engine, the system finds a set of ads with keywords that match the query and determines which ads to show and where to show them. When the search results and ads are displayed, the user may click on an ad for further information. In this case, the advertiser pays the search engine an amount determined by the bids of the other competing advertisers. The expected revenue received by the search engine is the price per click the expected number of clicks. The search engine would like to sell the most prominent positions to those ads that have the highest expected revenue. To accomplish this, the ads are ranked by bid times expected clickthrough rates, and those ads with the highest revenue are shown in the most prominent positions. Search engines may also consider various measures of "ad quality" in their choice of which ads to display.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.99.2.430