A hybrid pricing mechanism for solving the click fraud problem in AdWords auctions

Click fraud is a serious threat to the keyword advertising industry. In this paper, we designed a hybrid pricing mechanism in which an advertiser can submit both her bids for a click and for an impression. When the real click-though rate does not exceed the predefined click-though rate she pays according to pay-per-click model, otherwise she pays according to pay-per-impression model. We proved that the hybrid pricing mechanism is resistant to click fraud and compared the search engine´s revenue in original AdWords auction mechanism and in our improved auction mechanism.