The generalized first-price auction (GFP) is a non-truthful auction mechanism for
sponsored search (a.k.a. position auctions).
In sponsored search ''n'' bidders compete for the assignment of ''k'' slots. Each slot has an associate click-through rate, the click-through rates are decreasing from top to bottom. The GFP mechanism asks each bidder for a bid. Then the highest bidder gets the first slot, the second-highest, the second slot and so on. On each click the highest bidder pays his bid on the first slot, the second highest bidder pays his bid on the second slot, and so on.
The GFP mechanism was the first mechanism to find application in
sponsored search, replacing the "flat fee" and "per-impression" model that was the standard. Overture adopted the GFP mechanism in 1997, and provided service to
Yahoo!
Yahoo (, styled yahoo''!'' in its logo) is an American web portal that provides the search engine Yahoo Search and related services including My Yahoo, Yahoo Mail, Yahoo News, Yahoo Finance, Yahoo Sports, y!entertainment, yahoo!life, and its a ...
and
MSN
MSN is a web portal and related collection of Internet services and apps provided by Microsoft. The main webpage provides news, weather, sports, finance and other content curated from hundreds of different sources that Microsoft has partnere ...
. Although very successful initially, bidders quickly learned how to manipulate the mechanism. Bidding patterns exhibited a characteristic saw-tooth pattern,
and the mechanism need not possess a (pure) Nash equilibrium.
These deficiencies lead to the replacement of the GFP mechanism in practice, and the adoption of alternate auction designs.
Recent work by Hoy et al.
and Dütting et al.
shows that the deficiencies of the GFP mechanism can be ascribed to its bidding interface, and that adopting a more expressive bidding interface guarantees the existence of an efficient
Nash equilibrium
In game theory, the Nash equilibrium is the most commonly used solution concept for non-cooperative games. A Nash equilibrium is a situation where no player could gain by changing their own strategy (holding all other players' strategies fixed) ...
under complete information as well as an efficient
Bayes-Nash equilibrium under incomplete information.
See also
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Generalized second-price auction
The generalized second-price auction (GSP) is a non-truthful auction mechanism for multiple items. Each bidder places a bid. The highest bidder gets the first slot, the second-highest, the second slot and so on, but the highest bidder pays the pri ...
*
Vickrey–Clarke–Groves auction
A Vickrey–Clarke–Groves (VCG) auction is a type of sealed-bid auction of multiple items. Bidders submit bids that report their valuations for the items, without knowing the bids of the other bidders. The auction system assigns the items in a ...
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First-price sealed-bid auction
A first-price sealed-bid auction (FPSBA) is a common type of auction. It is also known as blind auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest b ...
*
AdWords
Google Ads, formerly known as Google Adwords, is an online advertising platform developed by Google, where advertisers bid to display brief advertisements, service offerings, product listings, and videos to web users. It can place ads in the res ...
References
{{Reflist
Types of auction