Title: Dynamic Position Auctions with Consumer Search

Abstract:

Early models of position auctions--the auctions search engines use to allocate sponsored links--have assumed positions' click-through rates to be entirely exogenous. This assumption appears, for example, in the foundational position auction model of Edelman, Ostrovsky, and Schwarz (2007). New approaches, such as that of Athey and Ellison (2008), have endogenized click-through rates through models of consumer search behavior. Building upon the framework of Athey and Ellison (2008), we study dynamic position auctions in the presence of consumer search. In particular, we demonstrate the efficient convergence of this dynamic position auction to the equilibrium of the associated static model. Our methods extend those used by Cary et al. (2008) to show a similar result under the assumption of exogenous click-through rates. The applicability of these methods in the presence of consumer search indicates the robustness of the approach and suggests that convergence of dynamic position auction models is demonstrable whenever the associated static equilibrium strategies are sufficiently well-behaved.