Frank Kelly; joint work
Key and Neil Walton
In current Ad-auctions, there is an information asymmetry between the platform and advertisers: the platform typically knows more than an advertiser about the search being conducted, such as information about the searcher. Hence the platform can potentially choose prices and an allocation that depends on the platform's additional information. In contrast, the advertiser has to rely on more coarse-grained information, perhaps just the search terms of a query together with a crude categorization of the searcher.
We show that the information asymmetry can be used to develop a simple mechanism for advert assignment and pricing that incentivizes truthful bidding and encourages convergence to a unique Nash equilibrium that is socially optimal.