Over the holiday period, the physics arxiv blog is re-running the most popular blogs (by page views) of 2007.<\/p>\n
Game theory and the future of Adwords<\/a>
\n8 September<\/p>\nAin\u2019t Google Adwords a miracle o\u2019 modern science? Here\u2019s a system that searches your web page for keywords, hunts for advertisers who wanna have their message displayed next to these keywords and then auctions the advertising space to the highest bidder. All in the twinklin\u2019 of an eye. Adwords is so good that it\u2019s made Google millions or billions or zillions (who\u2019s countin\u2019?)<\/p>\n
What can game theory tell us about the future of this digital auction house? According to Sudhir \u201cSecrets\u201d Singh, an electrical engineer at the University of California, Los Angeles and his buddies, game theory suggests that everybody would benefit by the emergence of a new kind of online business that exploits the inefficiencies of the Adwords system.<\/p>\n
Here\u2019s the thinkin\u2019. There is a limit to the number of advertising slots on each page and this leaves advertisers a-scramblin and a-scufflin for spaces next to the most popular keywords. Inevitably, the advertisers who miss out are left a-sobbin and a-wimperin at the end of the day. The sobbers and wimperers are perfect fodder for the new businesses.<\/p>\n
According to Secrets Singh, these businesses are gonna buy up popular keywords and then resell them to advertisers who want to ensure they don\u2019t miss out on a slot. Secrets and his crew have built a model of this new market and calculated the revenues and payoffs for all parties. The model assumes that this game is a symmetric Nash equilibrium, meaning that everybody plays in the same way (or at least that nobody has anything to gain by unilaterally adopting a different strategy) .<\/p>\n
Under these circumstances everybody wins\u2013the auctioneer, the reseller and the bidders.<\/p>\n
Ain\u2019t that a bee-yoo-tiful story? So ya\u2019ll gonna see resellers springin up all over the place soon. Secrets Singh and his buddies even have a start up called Ilial.com<\/a> and there ain\u2019t no prizes for guessing what that\u2019s gonna be doin\u2019.<\/p>\n
They\u2019ll already be a-dreamin and a-wondrin about the zillions they gonna make.<\/p>\n
I know ya\u2019ll lurv a happy endin. So ya\u2019ll keep quiet about Adwords not being a symmetric Nash equilibrium. Y\u2019hear?<\/p>\n