document: Hybrid keyword search auctions Search auctions have become a dominant source of revenue generation on the Internet . Such auctions have typically used per-click bidding and pricing . We propose the use of hybrid auctions where an advertiser can make a per-impression as well as a per-click bid , and the auctioneer then chooses one of the two as the pricing mechanism . We assume that the advertiser and the auctioneer both have separate beliefs ( called priors ) on the click-probability of an advertisement . We first prove that the hybrid auction is truthful , assuming that the advertisers are risk-neutral . We then show that this auction is superior to the existing per-click auction in multiple ways : We show that risk-seeking advertisers will choose only a per-impression bid whereas risk-averse advertisers will choose only a per-click bid , and argue that both kind of advertisers arise naturally . Hence , the ability to bid in a hybrid fashion is important to account for the risk characteristics of the advertisers . For obscure keywords , the auctioneer is unlikely to have a very sharp prior on the click-probabilities . In such situations , we show that having the extra information from the advertisers in the form of a per-impression bid can result in significantly higher revenue . An advertiser who believes that its click-probability is much higher than the auctioneer 's estimate can use per-impression bids to correct the auctioneer 's prior without incurring any extra cost . The hybrid auction can allow the advertiser and auctioneer to implement complex dynamic programming strategies to deal with the uncertainty in the click-probability using the same basic auction . The per-click and per-impression bidding schemes can only be used to implement two extreme cases of these strategies . As Internet commerce matures , we need more sophisticated pricing models to exploit all the information held by each of the participants . We believe that hybrid auctions could be an important step in this direction . The hybrid auction easily extends to multiple slots , and is also applicable to scenarios where the hybrid bidding is per-impression and per-action ( i.e. CPM and CPA ) , or per-click and per-action ( i.e. CPC and CPA ) .
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