Ranked Items Auctions and Online Advertisement

We study auctions for a set of ranked items where each buyer has unit demand. This setting has promising applications in areas such as the sale of condominiums and keyword auction of search engine advertising industry. An appropriate auction mechanism in studying problems of this kind is the simultaneous pooled auction (SPA) where each bidder simultaneously submits a single bid, and is allocated an object based on the rank of his bid among all the bids. We study how to improve the seller's expected revenue by enforcing a reserve price in SPA. We find that the use of the reserve price will significantly increase the seller's revenue, especially when the number of items for sale is relatively large comparing to the number of participating bidders. One severe problem inherent in SPA is that some bidders may incur ex post losses; that is, they pay more than what they win. We then propose a tailored VCG mechanism that generates the same expected revenue as SPA does, while the bidders do not incur any ex post loss. We also discuss the potential applications of this research to the keyword auctions in the search engine advertising industry.