Combinatorial advertising internet auctions

The paper extends the Generalised Second Price (GSP) auction, adopted by search engines to allocate advertising slots, considering the possibility that players could use images to advertise their products rather than text only ads. Since images occupy more than one slot in the template the extension consists in allowing players to bid for a bundle of slots, as well as for a single slot, where an image could be accommodated. For this reason the auctions we consider are combinatorial, though with constrained combinations. Indeed, to accommodate an image or a video slots will have to occupy consecutive positions. Unlike existing work, we assume that slots assignment is determined endogenously by the players, as the outcome of a Nash Equilibrium. This implies that the number of slots assigned to text only messages and to images is not predefined by the search engine. Based on the analysis, we argue that alternative ways to extend GSP can give rise to rather different slots allocation and revenues for the search engine.