A Field Guide to Personalized Reserve Prices
Venue
WWW'16 (2016) (to appear)
Publication Year
2016
Authors
Renato Paes Leme, Martin Pál, Sergei Vassilvitskii
BibTeX
Abstract
We study the question of setting and testing reserve prices in single item auctions
when the bidders are not identical. At a high level, there are two generalizations
of the standard second price auction: in the lazy version we first determine the
winner, and then apply reserve prices; in the eager version we first discard the
bidders not meeting their reserves, and then determine the winner among the rest.
We show that the two versions have dramatically different properties: lazy reserves
are easy to optimize, and A/B test in production, whereas eager reserves always
lead to higher welfare, but their optimization is NP-complete, and naive A/B
testing will lead to incorrect conclusions. Despite their different
characteristics, we show that the overall revenue for the two scenarios is always
within a factor of 2 of each other, even in the presence of correlated bids.
Moreover, we prove that the eager auction dominates the lazy auction on revenue
whenever the bidders are independent or symmetric. We complement our theoretical
results with simulations on real world data that show that even suboptimally set
eager reserve prices are preferred from a revenue standpoint.
