Analyzing Frictions in Generalized Second Price Auction Markets

Information Systems and Operations Management

Speaker : Vandith PAMURU

PhD Candidate in Management Information Systems Purdue University  

HEC Campus - Jouy-En-Josas - Bâtiment V - Salle Bernard Ramanantsoa

Abstract:

Recent advances in technology have reduced frictions in various markets. In this research, we specifically investigate the role of frictions in determining the efficiency and bidding behavior in a generalized second price auction (GSP) – the most preferred mechanism for sponsored search advertisements. First, we simulate Q-learning based computational agents in the GSP setting and obtain predictions for the metrics of interest. Second, we test these predictions by conducting a human-subject experiment. We find that, contrary to the theoretical prediction, the lower-valued advertisers (who do not win the auction) substantially overbid. Moreover, we find that the presence of market frictions moderates this phenomenon and results in higher allocative efficiency. These results have implications for policymakers and auction platform managers in designing incentives for more efficient auctions.

Bio:

Vandith Pamuru is a PhD candidate majoring in Management Information Systems at Purdue University. His research interests are in studying user engagement on online platforms, and the subsequent impacts on different stakeholders associated with the platform. His work has been presented in multiple conferences including ICIS, WISE, SCECR, CIST and WITS, where he also received Best Paper runner-up award. Prior to joining Purdue, he has worked for 5 years of industry experience as a designer and product manager, and an year as academic associate at Indian School of Business (ISB).