Revenue enhancement in ad auctions

Abstract

We consider the revenue of the Generalized Second Price (GSP) auction, which is one of the most widely used mechanisms for ad auctions. While the standard model of ad auctions implies that the revenue of GSP in equilibrium is at least as high as the revenue of VCG, the literature suggests that it is not strictly higher due to the selection of a natural equilibrium that coincides with the VCG outcome. We propose a randomized modification of the GSP mechanism, which eliminates the low-revenue equilibria of the GSP mechanism under some natural restrictions. The proposed mechanism leads to a higher revenue to the seller. © 2011 Springer-Verlag Berlin Heidelberg.