Arbitrage opportunities across sponsored search markets (Q954989)

The authors model and study arbitrage across sponsored search markets created by search engines. The framework of their analysis is the generalized second price auction (GSP auction), which is the most popular protocol for sponsored search markets. They identify two existing arbitrage behaviors, i.e. traffic arbitrage and click arbitrage. For traffic arbitrage, the auctioneer of some GSP auction will bid for some advertising slot on other GSP auctions to increase the traffic to the auctioneer's own search engine. If one auctioneer/affiliate of some GSP auction bids for some advertising slot to transfer the clicks won to the slot on his own GSP auction to increase the number of clicks of that slot, this strategic behavior is called click arbitrage. The authors propose the first models for such arbitrage behavior and derive properties of cross-market auction models under GSP utilizing the properties of the forward looking Nash equilibrium. The main result consists in deriving and characterizing of the equilibria of mentioned arbitrage behaviors across multiple market.