The linked page[0] on the Android website explaining the choice screen has some interesting information on the auction, including:
> Google will use a fourth-price auction to select the other general search providers that appear in the choice screen. ... The three highest bidders will appear in the choice screen for that country. The provider that is selected by the user will pay the amount of the fourth-highest bid.
My gut reaction to this auction system is that it would be vulnerable to abuse by a small number of bad actors. For example, what is to stop a company from bidding an artificially high amount in order to win the auction, knowing that they will most likely end up paying a more reasonable sum by the other fair bidders?
> My gut reaction to this auction system is that it would be vulnerable to abuse by a small number of bad actors. For example, what is to stop a company from bidding an artificially high amount in order to win the auction, knowing that they will most likely end up paying a more reasonable sum by the other fair bidders?
Because there is no incentive to bid higher than your true value.
Suppose you derive $N value from acquiring a user on the search screen. If you bid $N + x (where x > 0), then there are three cases:
1. Others bid more than $N + x, so you lose the action. In this case, the price was above the value you would derive, so not paying is the best choice.
2. Others bid between $N and $N + x. Let's call the action price $N + y. Then you win the auction. You pay $N + y for the user, but you only derive $N value, so you lose $y. This is a bad result; you shouldn't have paid.
3. Others bid less than $N. Let's call the auction price $N - z (where z > 0). Since you derive $N from the user, you gain $z, by paying, which is the best choice.
As a bidder, you want to avoid scenario 2. The best way to do this is to minimize the value of $x — that is; set $x = 0. So it's optimal to bid no higher than your true value, $N.
By analogy, you can also prove that it's suboptimal to bid below your true value by considering the three cases when you bid $N - x (where x > 0).
That strategy quickly falls apart if more than one company bids an "artifically high amount". It's a pretty well-studied format that incentivizes bidders to bid the true value.
> Google will use a fourth-price auction to select the other general search providers that appear in the choice screen. ... The three highest bidders will appear in the choice screen for that country. The provider that is selected by the user will pay the amount of the fourth-highest bid.
My gut reaction to this auction system is that it would be vulnerable to abuse by a small number of bad actors. For example, what is to stop a company from bidding an artificially high amount in order to win the auction, knowing that they will most likely end up paying a more reasonable sum by the other fair bidders?
[0]: https://www.android.com/choicescreen/