Chris Pollett > Students > Umaranikar

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How System Calculates min bid Amount?

The auction system calculates the minimum bid required to create a new campaign based on the popularity of keywords. Every day is considered as a separate transaction for the same advertisement. If some keyword has not already been used before, then a minimum bid set is to 1 for that keyword. For the same keyword, the bid amount may vary for different dates as we are considering every day as a different transaction.

Consider following example. A user is creating a new campaign called "Test Advertisement". Keywords associated with it are "test" and "adv". The user entered start date as May 1, 2015 and end date as May 7, 2015. Now, we will discuss how the auction system calculates minimum bid required to create this campaign.

As every day is a separate transaction, the bid amount associated with keywords "test" and "adv" for different dates may vary. Consider the following table describing the existing bid amount associated with each keyword. If for a given date, the keyword has not used been before then the minimum bid for that day is set to 1.

Along with the minimum budget required, the auction system displays expensive words among the keywords associated with an advertisement. It helps users to manage their budget. User can try minimizing their budget by removing expensive words from the keywords list. To get this information, the user has to enter the keywords list and click on the "Add Keywords" button on the form. An advertisement is created only if the user's budget is greater than the minimum budget.

Calculating minimum bid required

To calculate the minimum bid, we will half the existing bid amount for every day for every associated keyword. For example, the bid amount for keywords test on for May 1, is 10. We will consider half the bid amount i.e. 5 for calculating minimum bid. For May 7, keyword test has not been used yet. Hence, the bid amount of "test" on that day is 1. We divide the bid amount by 2 so as to have logarithmic distribution of the total amount of money involved. Also, the minimum bid required would be high if we use bid values as it is.

The minimum bid for the word "test" = (10/2) + (8/2) + (10/2) + (12/2) + (10/2) + (8/2) + 1 = 5 + 4 + 5 + 6 + 5 + 4 + 1 = 30.

Similarly, the minimum bid required for word the "adv" is, = 4 + 6 + 5 + 6 + 4 + 2 + 6 = 33.

Hence, the minimum bid required to create the campaign = 30 + 33 = 63 And the expensive word in this case is, "adv".