Pure-Strategy Equilibrium in the Generalized First-Price Auction
We revisit the classic result on the (non-)existence of pure-strategy Nash equilibria in the Generalized First-Price Auction for sponsored search advertising and show that the conclusion may be reversed when ads are ranked based on the product of stochastic quality scores and bid amounts, rather than solely on the latter. Moreover, the expected revenue in the pure strategy equilibrium of the Generalized First-Price Auction may substantially exceed that of the Generalized Second-Price Auction.
Michael Ostrovsky is the Fred H. Merrill Professor of Economics at the Stanford Graduate School of Business, a co-director of the NBER Working Group on Market Design, and a co-founder of Topsort, a venture-backed start-up that provides auction-based infrastructure and advertising solutions for online retailers and marketplaces. His research is in the areas of game theory, marketplace design, industrial organization, and finance. Most recently, he has analyzed the economics of carpooling and self-driving cars, the properties of internet advertising auctions, information aggregation in financial markets, stability in trading networks, and voting in shareholder meetings. Michael received his PhD in Business Economics from Harvard University and his BAS in Mathematics and Economics from Stanford University. His CV is available at https://web.stanford.edu/~ost/cv.pdf and his research is available at https://web.stanford.edu/~ost/.