Wednesday, May 23, 2007

Bid dynamics in sponsored search

You are an online advertiser and have a limited budget to bid on many different keywords in sponsored search auctions. Different keywords have different traffic, click-throughs and competition. What is your best strategy? In an upcoming EC paper, Jon, Martin, Cliff and I showed that just bidding uniformly (say the same bid) across keywords does quite well. There are details of course and there is modeling involved in setting up the problem.

A very interesting aspect of this question is what happens if all advertisers behave in this manner? In a nice paper by C. Borgs, J. Chayes, O. Etesami, N. Immorlica, K. Jain, and M. Mahdian in WWW 2007 titled Dynamics of bid optimization in online advertisement auctions, the authors use insights from dynamical systems and produce certain perturbations of such uniform bidding schemes that converge and have interesting market equilibrium properties. It is a paper worth reading, lot of open problems remain.

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