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Autobidding Auctions in the Presence of User Costs

Hanrui Zhang
Proceedings of the ACM Web Conference 2023, pp. 3428-3435


Although costs are prevalent in ad auctions, not many auction theory works study auction design in the presence of cost in the classic settings. One reason is that most auctions design in the setting without cost directly generalize to the setting with cost when the bidders maximizing quasi-linear utility. However, as auto-bidding becomes a major choice of advertisers in online advertising, the distinction from the underlying behavior model often leads to different solutions of many well-studied auctions. In the context of ad auctions with cost, VCG achieves optimal welfare with quasi-linear utility maximizing bidders, while has 0 welfare approximation guarantee with value maximizing bidders who follow the optimization behind common auto-bidding algorithms. In this paper, we prove that the approximation welfare guarantee of VCG auction can be significantly improved by a minimal change --- introducing cost multipliers. We note that one can use either one multiplier per auction or one multiplier per bidder, but one global multiplier across all auctions and bidders does not work. Finally, to echo with our theoretical results, we conduct empirical evaluations using semi-synthetic data derived from real auction data of a major advertising platform.