Q
How have search engines revolutionized advertising?
A
As you will learn in NETS 150: Market and Social Systems on the Internet and NETS 412: Algorithmic Game Theory, Google, Bing, Yahoo, Yandex, Baidu, and others make money by charging advertisers whenever a search engine user clicks on an ad placed with the search results. Building on ideas from game theory and auctions, the price of the ad depends on the value of the ad to the advertiser. This value will depend on how competitive the market is, how likely people are to make a purchase after clicking on the ad, and so on. Most search engines use a particular algorithm called Generalized Second Price to choose how much to charge an advertiser: the advertiser who gets the best positioning pays the amount bid by the second-highest bidder, the advertiser who gets the second best positioning pays the amount bid by the third-highest bidder, and so on.
