Audited Auctions: Reducing Harms in Advertising
Computer Science and Game Theory
Summary
The authors study auctions where people bid for things like ads, but sometimes those auctions can cause problems for others who aren't even bidding. They propose a method where the auctioneer checks for bad effects and punishes harmful bids to reduce these problems. The authors prove mathematically that their method can include these outside effects and then test it to see how much it improves overall well-being.
Authors
Tejovan Parker, Gabriel McDonnell Maayan, Francisco Marmolejo-Cossío, Marshall Van Alstyne
Abstract
Although standard auction mechanisms help truthfully reveal preferences of bidders, they can inadvertently result in unbounded harms when they fail to account for externalities caused by bid allocations affecting non-bidders. Ad markets, that buy and sell user attention represent such auctions. This research explores a welfare improving auctioneer's audit-and-penalty mechanism that helps screen the worst externalities. We prove this mechanism can internalize externalities formally, then explore social welfare gains empirically.