Entry, bid shading, and bias in sponsored search auctions

• Department of Economics

This event features a discussion by Eeva Mauring (University of Bergen).

We examine bidder participation in sponsored search auctions when platform rankings include both organic and sponsored positions. We develop a model in which bidders decide whether and how aggressively to bid for sponsored positions. The platform’s ex post revenue maximising ranking induces bid shading. The platform can increase its revenue by biasing rankings toward sponsored positions, even at the cost of lower-quality search results. We test the model using data from Amazon’s search results and find evidence consistent with the model’s predictions.

Our findings highlight a fundamental tension in platform design between revenue maximisation, search results’ quality, and bidder participation.

Co-authors: Anastasiia Parakhoniak (Durham) and Cole Williams (Nebraska-Lincoln)