The project shows the Application of Game Theory in Google adwords bidding.

2. GOOGLE ADWORDS
• Online advertising service
• Enables competition among advertisers
• Brief advertising rights on google and their
partner web pages
• Based on pre-defined keywords
• Links to web page content
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3. TYPE OF AUCTION
Second price auction
• Closed bids
• Winner pays just enough to beat the competition
• Bid price and quality parameters used for evaluation
• Winner decided based on ad rank
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4. SECOND PRICE AUCTION
• Players bid for a good
• Sealed bid
• Winner decided based on ad rank– considers bid price and quality of the ad content
• Highest bidder wins, but pays the second highest bid
Example:
Say bids for a product are A=$100, B=$90, C=$ 80, D=$70
So here, A wins the bid, but need to pay just $90
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5. AD RANK CALCULATION
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6. STRATEGIES
If you were the loser:
You can decrease the bid
• And lose again and receive nothing
Or
You can increase the bid, where
• You still lose and receive nothing
• Or win, but end up paying more than valued
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7. If you were the winner:
You increase the bid
• Still win and pay the same as before (second highest bid)
Or
You decrease the bid and
• Still pay the same second highest bid price
• Or lose and get nothing
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8. CONCEPTS
• Asymmetric – payoffs change with players
• Incomplete information – players have private information
• Weakly dominant strategy – payoff at least as high as any other strategy
• Weakly dominated strategy – all other strategies apart from the weakly dominant one
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9. STRATEGY-PROOF
• Each player playing their weakly dominant strategy by revealing their private information
• Truthful or dominant-strategy-incentive-compatible (DCIS)
• Type of incentive compatible: DCIS & BNIC
• IC – every participant gets best for himself by acting true to his preferences
• Bayesian-nash-incentive-compatibility (BNIC) – if all participants are true then it is best to be
true too
• Used in second price auctions, VCG mechanism, majority votingetc
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10. VCG MECHANISM
• Vickrey–clarke–groves mechanism
• Socially-optimum solution
• Select any outcome from a set of possible outcomes
• Selects that outcome that maximizes the sum values of all the participants (total value)
• Applied in auctions, public projects, quickest pathetc
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11. SHORTEST PATH
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Thank You