Theory of Sponsored Search Auctions

Web search engines are becoming an increasingly important advertising medium. When a user poses a query in addition to search results, the search engine also returns a few advertisements. On most major search engines, the choice and assignment of ads to positions is determined by an auction among all advertisers who placed a bid on some keyword that matches the query. The user might click on one or more of the ads, in which case (in the pay-per-click model) the advertiser receiving the click pays the search engine a price determined by the auction.