Equilibrium analysis of dynamic bidding in sponsored search auctions

Abstract

We analyse symmetric pure strategy equilibria in dynamic sponsored search auction games using simulations, restricting the strategies to several in a class of greedy bidding strategies introduced by Cary et al. We show that a particular convergent strategy, 'balanced bidding', also exhibits high stability to deviations in the dynamic setting. On the other hand, a cooperative strategy which yields high payoffs to all players is not sustainable in equilibrium play. Additionally, we analyse a repeated game in which each stage is a static complete information sponsored search game. In this setting, we demonstrate a collusion strategy which yields high payoffs to all players and empirically show it to be sustainable over a range of settings. Finally, we show how a collusive strategy profile can arise even in the case of incomplete information.