We investigate the “generalized second-price ” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze the properties of GSP, we describe the generalized English auction that corresponds to GSP and show that it has a unique equilibrium. This is an ex post equilibrium, with the same payoffs to all players as the dominant strategy equilibrium of VCG. (JEL D44, L81, M37) This paper investigates a new auction mechanism, which we call the “generalized secondprice” auction, or GSP. GSP is tailored to the unique environment of the market for online ads, and neither the environment nor the mechanism has previously been studied in the mechanism design literature. While studying the properties of a novel mechanism is often fascinating in itself, our interest is also motivated by the spectacular commercial success of GSP. It is the dominant transaction mechanism in a large and rapidly growing industry. For example, Google’s total revenue in 2005 was $6.14 billion. Over 98 percent of its revenue came from GSP auctions. Yahoo!’s total revenue in 2005 was $5.26 billion. A large share of Yahoo!’s revenue is derived from sales via GSP auctions. It is believed that over half of Yahoo!’s revenue is derived from sales via GSP auctions. As of May 2006, the combined market capitalization of these companies exceeded $150 billion. Let us briefly describe how these auctions work. When an Internet user enters a search

Auctions have emerged as the primary means of assigning spectrum licenses to companies wishing to provide wireless communication services. Since July 1994, the Federal Communications Commission (FCC) has conducted 33 spectrum auctions, assigning thousands of licenses to hundreds of firms. Countries throughout the world are conducting similar auctions. I review the current state of spectrum auctions. Both the design and performance of these auctions are addressed.

In multiple-object environments where individual bidders may demand more than one object, standard methods of auction generally result in allocative inefficiency. This paper proposes a new ascending-bid method for auctioning homogeneous goods, such as Treasury bills or communications spectrum. The auctioneer announces a current price, bidders report back the quantity demanded at that price, and the auctioneer raises the price. Objects are awarded to bidders at the current price whenever they are “clinched, ” and the process continues until the market clears. With pure private values, the proposed (dynamic) auction yields the same outcome as the (sealed-bid) Vickrey auction, but may be simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders ’ demand curves. With interdependent values, the proposed auction may still yield efficiency, whereas the Vickrey auction fails due to a problem which could be described as the “Generalized Winner’s Curse.” JEL No.: D44 (Auctions)

Rothschild, and three most helpful referees. Very special thanks for many years of helpful insights are due to Richard Day and Luigi Ermini. Hamlet: “What a piece of work is a man! how noble in reason! how infinite in faculties!”

In this paper we present a new improved design for multi-object auctions and report on the results of experimental tests of that design. We merge the better features of two extant but very di#erent auction processes, the Simultaneous Multiple Round (SMR) design used by the FCC to auction spectrum and the Adaptive User Selection Mechanism (AUSM) of Banks, Ledyard, and Porter (1989). Then, by adding one crucial new feature, we are able to create a new design, the Resource Allocation Design (RAD) auction process, which performs better than both. Our experiments demonstrate, in both simple and complex environments, that the RAD auction achieves higher e#ciencies, lower bidder losses, and faster times to completion without increasing the complexity of a bidder's problem.

This paper describes the auction rules and how bidders prepared for the auction. The full history of bidding is presented. Several questions for auction theory are discussed. In the end, the government collected $617 million for ten licenses. The auction was viewed by all as a huge success---an excellent example of bringing economic theory to bear on practical problems of allocating scarce resources.

William Vickrey's predicted equivalences between first-price sealed-bid and Dutch auctions, and between second-price sealed-bid and English auctions, are tested using field experiments that auctioned off collectible trading cards over the Internet. The results indicate that the Dutch auction produces 30 percent higher revenues than the first-price auction format, a violation of the theoretical prediction and a reversal of previous laboratory results, and that the English and second -price formats produce roughly equivalent revenues. (JEL C93, D44) Forthcoming, American Economic Review Department of Economics, 415 Calhoun Hall, Vanderbilt University., Nashville, TN 37235 (Email: reiley@vanderbilt.edu) Although I financed the actual experiments myself while a graduate student, I very gratefully acknowledge the financial support of the National Science Foundation, grant SBR-9811273, for subsequent work on this paper. I wish to thank Marius Hauser and Mary Lucking-Reiley for their research assistance, and Skaff Elias for product information about Magic: the Gathering. I am grateful to an anonymous referee, Orley Ashenfelter, Ann Bell, Jim Cox, Rachel Croson, Ron Harstad, Elton Hinshaw, John List, Preston McAfee, Jennifer Reinganum, Bill Sethares, Vernon Smith, David Wildasin, participants at the Economic Science Association annual meetings, and especially Glenn Ellison, for their advice and constructive criticism.

Experimental economists are leaving the reservation. They are recruiting subjects in the field rather than in the classroom, using field goods rather than induced valuations, and using field context rather than abstract terminology in instructions. We argue that there is something methodologically fundamental behind this trend. Field experiments differ from laboratory experiments in many ways. Although it is tempting to view field experiments as simply less controlled variants of laboratory experiments, we argue that to do so would be to seriously mischaracterize them. What passes for “control ” in laboratory experiments might in fact be precisely the opposite if it is artificial to the subject or context of the task. We propose six factors that can be used to determine the field context of an experiment: the nature of the subject pool, the nature of the information that the subjects bring to the task, the nature of the commodity, the nature of the task or trading rules applied, the nature

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Recent auction theory suggests that multi-unit uniform-price auctions, as used by the U.S. Treasury for debt sales, produce incentives that may cause bidders to bid less than their true valuations, resulting in inefficient allocations and reduced revenue. In this paper, we present the results of a field experiment in which we auction nearly $10,000 worth of sportscards in two-unit, two-person sealed-bid auctions. We randomize participants into uniform-price and Vickrey auction treatments, and find underbidding in the uniform-price auctions' second-unit bids, as predicted. In contrast with theoretical predictions, however, we find that individual's first-unit bids are significantly higher in the uniform-price than in the Vickrey treatment. The bid differences are large enough to affect the allocation of goods, as split allocations result significantly more often in the uniform-price treatment. We find no significant difference in revenues across auction formats.