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.

/pdf/internet-advertising-and-the-generalized-second-price-1uh5jxi66t.pdf

Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords

The article reviews the book “Information Rules: A Strategic Guide to the Network Economy,” by Carl Shapiro and Hal R. Varian.

Information Rules: A Strategic Guide to the Network Economy

This paper investigates the effects of privatization in the presence of strategic trade policies within an international mixed oligopoly serving a single market. If the government uses a domestic production subsidy, then welfare is always increased with privatization, while the optimal subsidy falls. If the government uses an import tariff, privatization increases welfare over much of the parameter space. The optimal tariff, however, may rise or fall. In recent years, many countries around the world are privatizing their state-owned industries. At the same time, many of these countries are also showing remarkable changes in their economic policies toward international trade. On many occasions, tariffs are significantly altered and domestic production subsidies are substantially reduced. For example, Russia has privatized its aircraft industry and doubled its tariff on imported aircraft. Colombia has privatized its stateowned automobile maker Colombia Automotriz and reduced the import tariffs on foreign-made cars. In Argentina, the government is pursuing a policy of selective privatization and subsequent reduction of subsidies. In Western Europe countries such as Germany and Spain have privatized their major airlines (Lufthansa and Iberia, respectively) and significantly reduced subsidies. What is the connection between privatization and strategic trade policies? Does privatization require a welfare-maximizing government to alter trade barriers? The objective of this paper is to answer these questions by investigating the interaction between privatization and strategic trade policies. The effects of privatization are typically analyzed in the context of mixed oligopoly models, where state-owned welfare-maximizing public firms interact with profit-maximizing private firms.1 We investigate the interaction between privatization and strategic trade policies by incorporating strategic trade instruments in an international mixed oligopoly model. Specifically, we consider two strategic trade instruments: an import tariff and a domestic production subsidy. The government chooses the optimal level of tariff or subsidy to maximize domestic welfare. For each trade instrument, we primarily focus on two questions. First, does privatization increase

https://www.jstor.org/stable/info/1060667

Mixed Oligopoly, Privatization, and Strategic Trade Policy

Endogenous timing in a mixed oligopoly

We investigate the optimal behavior of a public firm in a mixed market involving private firms and one public firm. Existing works show that welfare-maximizing behavior by the public firm is suboptimal when the number of firms is given exogenously. We allow free entry of private firms and find that, in contrast to the case with the fixed number of firms, welfare-maximizing behavior by the public firm is always optimal in mixed markets. Furthermore, we find that mixed markets are better than pure markets involving no public firm if and only if the public firm earns nonnegative profits.

Mixed Oligopoly at Free Entry Markets

In this paper, a mixed oligopoly model is considered in which a state-owned public firm competes with both domestic and foreign private firms. Previous articles on mixed oligopoly did not include foreign private firms. The effect on the equilibrium involves a lower price and a different allocation of production (relative to the case when all private firms are domestically owned). In addition, issues such as the effects of an open door policy allowing foreign firms to enter and the effects of foreign acquisition of domestic firms are discussed.

A Mixed Oligopoly in the Presence of Foreign Private Firms

This is the first paper to consider a mixed oligopoly in which a public Stackelberg leader competes with both domestic and foreign private firms. The welfare maximising leader is shown to always produce less than under previous Cournot conjectures. Introducing leadership also alters previous public pricing rules resulting in prices that may be either greater than or less than marginal cost depending on the relative number of domestic firms. Furthermore, entry of a foreign firm will increase welfare only when the relative number of domestic firms is small, but that share is shown to be larger than has been indicated without leadership. Unlike previous models, the influence on public profit of a foreign acquisition is ambiguous and is related to the relative number of domestic firms. Finally, the consequences of privatisation are shown, for the first time, to depend on the relative number of domestic firms.

/pdf/public-stackelberg-leadership-in-a-mixed-oligopoly-with-3ltfi3tyex.pdf

Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms

Mixed oligopoly, subsidization and the order of firm's moves: the relevance of privatization

We analyse the choice of pay-per-view (PPV) and pay-per-click (PPC) when a web publisher is a price taker in the market for advertising banners, and the number of visits is decreasing in advertising. Several pricing recommendations are developed. First, the web publisher should always choose either PPV or PPC. Specifically, if the click-through rate is less than the ratio of PPV to PPC prices, then PPV should be chosen, and vice versa. Furthermore, if the click-through rate is exogenous, then the optimal amount of advertising is the same for both pricing methods. Finally, if the click-through rate is endogenous, the amount of advertising will be different under PPV and PPC.

https://link.springer.com/content/pdf/10.1057%2Frpm.2008.39.pdf

Online advertising: Pay-per-view versus pay-per-click — A comment

We analyze the choice of pay-per-view (PPV) and pay-per-click (PPC) under imperfect competition where a web publisher is a price setter in the market for advertising banners, the number of visits to the website is decreasing in advertising, and the click-through rate is constant. We find that the optimal amount of advertising under pure PPV or PPC pricing is decreasing in market power, and smaller than for a price-taking web publisher. If the web publisher sells both PPV and PPC advertising, the ratio of the prices should equal the click-through rate if the market power is the same in both markets. However, if the market power for PPV advertising exceeds that for PPC advertising, then the ratio of the prices should be less than the click-through rate. Conversely, if the market power for PPV advertising is less than that for PPC advertising, then the ratio of the prices exceeds the click-through rate.

https://link.springer.com/content/pdf/10.1057%2Frpm.2010.5.pdf

Kenneth Fjell

Papers

A Mixed Oligopoly in the Presence of Foreign Private Firms

Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms

Mixed oligopoly, subsidization and the order of firm's moves: the relevance of privatization

Online advertising: Pay-per-view versus pay-per-click — A comment

Online advertising: Pay-per-view versus pay-per-click with market power