On revenue maximization in second-price Ad auctions

Yossi Azar, Benjamin Birnbaum, Anna R. Karlin, C. Thach Nguyen

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review


Most recent papers addressing the algorithmic problem of allocating advertisement space for keywords in sponsored search auctions assume that pricing is done via a first-price auction, which does not realistically model the Generalized Second Price (GSP) auction used in practice. Towards the goal of more realistically modeling these auctions, we introduce the Second-Price Ad Auctions problem, in which bidders' payments are determined by the GSP mechanism. We show that the complexity of the Second-Price Ad Auctions problem is quite different than that of the more studied First-Price Ad Auctions problem. First, unlike the first-price variant, for which small constant-factor approximations are known, it is NP-hard to approximate the Second-Price Ad Auctions problem to any non-trivial factor. Second, this discrepancy extends even to the 0-1 special case that we call the Second-Price Matching problem (2PM). In particular, offline 2PM is APX-hard, and for online 2PM there is no deterministic algorithm achieving a non-trivial competitive ratio and no randomized algorithm achieving a competitive ratio better than 2. This stands in contrast to the results for the analogous special case in the first-price model, the standard bipartite matching problem, which is solvable in polynomial time and which has deterministic and randomized online algorithms achieving better competitive ratios. On the positive side, we provide a 2-approximation for offline 2PM and a 5.083-competitive randomized algorithm for online 2PM. The latter result makes use of a new generalization of a classic result on the performance of the "Ranking" algorithm for online bipartite matching.

Original languageEnglish
Title of host publicationAlgorithms - ESA 2009 - 17th Annual European Symposium, Proceedings
Number of pages12
StatePublished - 2009
Event17th Annual European Symposium on Algorithms, ESA 2009 - Copenhagen, Denmark
Duration: 7 Sep 20099 Sep 2009

Publication series

NameLecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume5757 LNCS
ISSN (Print)0302-9743
ISSN (Electronic)1611-3349


Conference17th Annual European Symposium on Algorithms, ESA 2009


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