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We consider a keyword auction for search engines for two links. The first link has a...

We consider a keyword auction for search engines for two links. The first link has a click frequency of 200/week and the second link has a click frequency of 100/week. Three bidders compete for that keyword. Bidder A values the pay-per-click at 8, bidder B’s valuation is 5 and bidder C’s valuation is 10. The auction format is GSP and we assume bidders bid their valuations. Calculate the outcome.

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In GSP, the winner pays a little more than the second highest bid.

Since bidder C has the highest bid of 10, he wins the auction.

But, he will pay 0.01 more than the second highest bid i.e 8.

Thus, bidder C wins and pays 8.01.

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