Budget Optimization in Search-Based Advertising Auctions

Internet search companies sell advertisement slots based on users' search queries via an auction. While there has been previous work onthe auction process and its game-theoretic aspects, most of it focuses on the Internet company. In this work, we focus on the advertisers, who must solve a complex optimization problem to decide how to place bids on keywords to maximize their return (the number of user clicks on their ads) for a given budget. We model the entire process and study this budget optimization problem. While most variants are NP-hard, we show, perhaps surprisingly, that simply randomizing between two uniform strategies that bid equally on all the keywordsworks well. More precisely, this strategy gets at least a 1-1/ε fraction of the maximum clicks possible. As our preliminary experiments show, such uniform strategies are likely to be practical. We also present inapproximability results, and optimal algorithms for variants of the budget optimization problem.

• Economics and Electronic Commerce