Date Added: Dec 2009
The author presents the results of a large field experiment on setting reserve prices in auctions for online advertisements, guided by the theory of optimal auction design suitably adapted to the sponsored search setting. Consistent with the theory, following the introduction of new reserve prices revenues in these auctions have increased substantially. Auctions are used to sell a wide variety of objects, ranging from flowers, paintings, and used cars to electromagnetic spectrum and Internet advertisements. The results of the experiment described in this paper show that setting appropriate reserve prices can lead to substantial increases in auction revenues.