Generalized first-price auction

This article relies excessively on references to primary sources. Please improve this article by adding secondary or tertiary sources. Find sources: "Generalized first-price auction" – news · newspapers · books · scholar · JSTOR (January 2024) (Learn how and when to remove this template message)

Part of a series on
Auctions
Types
All-pay Chinese Amsterdam Anglo-Dutch Barter double Best/not best Brazilian Calcutta Candle Click-box bidding Combinatorial Common value Deferred-acceptance Discriminatory price Double Dutch English Forward French Generalized first-price Generalized second-price Japanese Knapsack Multi-attribute Multiunit No-reserve Rank Reverse Scottish Sealed first-price Simultaneous ascending Single-price Traffic light Uniform price Unique bid Value of revenues Vickrey Vickrey–Clarke–Groves Walrasian Yankee
Bidding
Shading Calor licitantis Cancellation hunt Jump Rigging Sniping Suicide Tacit collusion
Contexts
Algorithms Autos Art Charity Children Players Domain names Flowers Loans Scam Slaves Spectrum Stamps Virginity Wine Wives
Theory
Digital goods Price of anarchy Revenue equivalence Winner's curse
Online
Ebidding Private electronic market Software
v t e

The generalized first-price auction (GFP) is a non-truthful auction mechanism for sponsored search (a.k.a. position auctions).^[1] 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! and MSN. Although very successful initially, bidders quickly learned how to manipulate the mechanism. Bidding patterns exhibited a characteristic saw-tooth pattern,^[2] and the mechanism need not possess a (pure) Nash equilibrium.^[1] 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.

See also

• Generalized second-price auction
• Vickrey–Clarke–Groves auction
• First-price sealed-bid auction
• AdWords

References