CFDP 2285

Calibrated Click-Through Auctions: An Information Design Approach


Publication Date: May 2021

Pages: 39


We analyze the optimal information design in a click-through auction with fixed valuations per click, but stochastic click-through rates. While the auctioneer takes as given the auction rule of the click-through auction, namely the generalized second-price auction, the auctioneer can design the information flow regarding the click-through rates among the bidders. A natural requirement in this context is to ask for the information structure to be calibrated in the learning sense. With this constraint, the auction needs to rank the ads by a product of the bid and an unbiased estimator of the click-through rates, and the task of designing an optimal information structure is thus reduced to the task of designing an optimal unbiased estimator.

We show that in a symmetric setting with uncertainty about the click-through rates, the optimal information structure attains both social efficiency and surplus extraction. The optimal information structure requires private (rather than public) signals to the bidders. It also requires correlated (rather than independent) signals, even when the underlying uncertainty regarding the click-through rates is independent. Beyond symmetric settings, we show that the optimal information structure requires partial information disclosure.

Keywords: Click-Through Rates, Information Design, Second-Price Auction, Calibration, Private Signals, Public Signals, Conflation

JEL Classification Codes: D44, D47, D82

JEL Classification Codes: D44D47D82

See CFP: CFP 1771

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