Analyzing Frictions in Generalized Second-Price Auction Markets
By Vandith Pamuru, Yaroslav Rosokha, Karthik Kannan
Information Systems Research | December 2022
DOI
pubsonline.informs.org/doi/full/10.1287/isre.2022.1187
Citation
Pamuru, Vandith., Rosokha, Yaroslav., Kannan, Karthik. (2022). Analyzing Frictions in Generalized Second-Price Auction Markets Information Systems Research pubsonline.informs.org/doi/full/10.1287/isre.2022.1187.
Copyright
Information Systems Research, 2022
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Abstract
We 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.

Vandith Pamuru is an Assistant Professor of Information Systems at the Indian School of Business (ISB). His primary research interests lie in the areas of user engagement on online platforms and incentives design, particularly in the context of emerging technologies. His work has been presented at several academic conferences including ICIS, WISE, SCECR, CIST, POMS, DSI, and WITS, where he also received the Best Paper runner-up award.

Professor Pamuru received his PhD in Management Information Systems and a Master’s in Economics from Purdue University, and completed his undergraduate degree in Information Systems from Birla Institute of Technology & Science (BITS)  Pilani. Prior to his doctoral studies, he gained extensive industry experience in user experience design and product management.

Vandith Pamuru
Vandith Pamuru