On the Ranking Strategy in Adword Auctions

Search engines get revenue thanks to ad word auctions, where commercial links are proposed and charged to advertisers as soon as the link is clicked through. Most search engines have chosen (or switched to) a revenue-based ranking and charging scheme instead of a bid-based one. We investigate here the relevance of that scheme when advertisers´ valuation comes from a random distribution. We show that, depending on the search engine´s click-through-rate, revenue-based does not always outperform bid-based in terms of revenue to the search engine. As a result, some search engines may have an interest to move to revenue-based ranking while others do not.