Chapter 7 - Budget Allocation In Competitive Search Advertisements, Part I: In Static Environments

Abstract

Sponsored search auctions have now become a popular online advertising format, and have been widely acknowledged as a promising business model for search engines. However, millions of advertisers with serious budget constraints aggravate the competition in sponsored search auctions, because budget constraints define the strategy space and thus affect possible equilibrium solutions. In this chapter, we employ game-theoretical approaches to analyze budget decisions in competitive search advertisements. The main results can be summarized as follows: (1) In the case of complete-information game settings, there exist Nash equilibrium strategies for budget allocation; (2) while in the case of incomplete-information game settings, there exist Bayesian Nash equilibrium strategies for budget allocation. We also present an evaluation approach based on the present value model to evaluate these equilibrium budget strategies in search advertising environments. Furthermore, some computational experiments are conducted to validate our budget strategies as identified in this work. Experimental results prove the superiority of our game-theoretical budget strategies over those neglecting budget competitions in sponsored search auctions.