Peaches, Lemons, and Cookies: Designing Auction Markets with Dispersed Information

Search and Advertising and Internet

Article Snapshot


Ittai Abraham, Susan Athey, Moshe Babaioff and Michael D. Grubb


Working Paper, 2013


This technical article develops a mathematical model of search term auctions and presents some implications.

Policy Relevance

Earlier models of auctions may be inadequate for evaluating the behavior of search engine advertisement market participants.

Main Points

  • In auctions for online advertising space, it’s common for some bidders to have better information about the value of the advertising space than others.  
    • Typically, this is because bidders have access to different sets of tracking cookies for a given consumer.
  • A novel mathematical concept called “tremble robust equilibrium” allows one to make predictions about online auctions when bidders have different information.
  • If one bidder knows more than other bidders, the revenue raised for the firm selling ad space will be determined by what she knows.  
    • If the informed bidder knows that the auction is valuable, the firm running the auction will not gain additional revenue.  
    • But, if the informed bidder has discovered that the auction is not valuable, the firm running the auction will lose substantial revenue.
  • If multiple bidders have good information, the same results will hold to at least some extent.
  • This is a novel result: usually, firms running auctions benefit by making information freely available to all bidders.  
    • In this case, however, the firm running the auction does well if it sells the information to bidders.


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