On revenue in the generalized second price auction

Abstract

The Generalized Second Price (GSP) auction is the primary auction used for selling sponsored search advertisements. In this paper we consider the revenue of this auction at equilibrium. We prove that if agent values are drawn from identical regular distributions, then the GSP auction paired with an appropriate reserve price generates a constant fraction (1/6th) of the optimal revenue. In the full-information game, we show that at any Nash equilibrium of the GSP auction obtains at least half of the revenue of the VCG mechanism excluding the payment of a single participant. This bound holds also with any reserve price, and is tight.