A Study on Ad-Place Quantity Optimization in AdWords Auction

Auction is a traditional and efficient mechanism for rare resource allocation, and it is one new strategy for Internet Search Engine providers to price their AdWords as well. However, the number of AdWords places can be infinte related to an AdWords due to Internet technology. As a result, supply often exceeds demand. It is a usual phenomenon that only one or two bidders participate in Goole or Baidu AdWords auction. This paper will analyze and compare the auctioneer's expected revenue in Winner-pay auction and All-pay auction with complete information and asymmetric bidders. It is shown that the auctioneer gains a larger expected revenue in one Ad-place auction than in two Ad-places auction, and Winner-pay prefers to All-pay in one Ad-place auction. Accordingly, the Internet Search Engine provider had better choose one Ad-place auction and Winner-pay rule to obtain the most profit for the case of few bidders.