An experimental study of the generalized second price auction

Abstract

We experimentally investigate the Generalized Second Price (GSP) auction used to sell advertising positions in online search engines. Two contrasting click through rates (CTRs) are studied, under both static complete and dynamic incomplete information settings. Subjects consistently bid above the Vikrey–Clarke–Grove's (VCG) like equilibrium favored in the theoretical literature. However, bidding, at least qualitatively, satisfies the contrasting outcomes predicted under the two CTRs. For both CTRs, outcomes under the static complete information environment are similar to those in later rounds of the dynamic incomplete information environment. This supports the theoretical literature that uses the static complete information model as an approximation to the dynamic incomplete information under which advertising positions are allocated in field settings.