Abstract – This paper characterizes the difference between a first price and second price auction. We will start with the definitions of these types of auctions, then look at the decision process that players take who choose to participate in this type of auction. We continue with an analysis of optimal bidding strategy, and for each player separately, we look at both their optimal strategy if they know the other player’s strategy and also if they do not.
Do you selling your goods or services programmatic ads? If yes, then you might have faced a challenge to decide which auction will suit you better. There could be two kind of auction for your ad-real time bidders and first price, second price auction. This article will help you to understand better about choosing your favorite auction.
Google first price auction
There are two types of auction systems commonly used by advertising exchanges. Depending on the type of auction that you use, the bidders’ strategies change.
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It is said first-price auctions tend to reward high bidders, while second-price auctions tend to punish them. This means that in a first-price auction, firms should adopt a strategy that allows them to win. Is it right? Well, it depends.
First Price Vs Second Price Auction.
Social media has altered the manner we live, shop, and work, and programmatic advertising is a cornerstone of this epoch. Thanks to advanced SSP mechanics, publishers in the advertising game have a dynamic range of options available to them, and one of the crucial choices that a publisher, seasoned or fledgling, will inevitably make, is which auction programmatic to go with and so will consider the positives and negatives of each of these.
For this piece, we questioned ourselves about the first price vs second price auction programmatic debate and determined that for the aims of today’s market, the second price auction is a better fit for the majority of a user’s intentions to the first price auction, for both the one who is publishing and the agent marketing the product. Here are four crucial and current points as to why.
- It increases the overall market value of your product.
To begin with the obvious point, when auction mechanics are programmed in the second price form, the winner will always pay only one penny more than the second highest bidder, which in turn makes marketing agents more confident that they won’t overspend, and as a result, they will probably bid higher for their ad space.
While it is an accurate statement that a publisher stands to make more from a solitary sale with the old style 1st price auction, when they have implemented the 2nd price auction they are more liable to increase the overall market value. This is because of those all so important higher bids that push the product up through the stratosphere.
In the context of the first price implemented system, the impressive bid that trumps all others is what will be spent, but we may want to rethink the whole ‘impressive bid that trump all others’ phrasing, because that is for movies.
In reality, the monetary merit of a person’s offer in this situation is generally more proportional to the worth of the product, and so is considered, and those whopping great big offers simply don’t happen.
With the second price auction programmatic, this caution is removed, due to the second bidder safety net, which causes higher bids. This will drive the price of the product up on paper, and increase the potential of overall net revenue. This is good news for the publisher, and good news for the bidder. When a product looks fine, the interest in it will rise, resulting in more competition, and a greater bid depth.
- It encourages repeat clientele for publishers and marketing agents.
Further to the point of bidders resting assured in not overpaying, they will become confident in a publisher’s safe, secure and trustworthy auction system, and thus trust the client more, and trust often results in repeat sales, and therefore, a repeat clientele. Ergo, the 2nd price auction system has greater long-term benefits.
In sales, people wish to get the greatest net gain possible, whereas the one who buys aims to pull their purse strings as tight as they can. It is a simple thing, and a balance between the two must be found, but the second price auction augmentation attends to this balance more, as well as the burning desires of the one who is purchasing products, who are, after all, your target market as a commissioner.
- It has more support on the world wide web.
While certain companies have switched to the classic Vickrey model and the shift back to basics is occurring, the second price is still the wider used system and is not going anywhere for a while. Companies such as Amazon still have it in place.
What does this mean? That the new and improved system has greater support, is more accessible, and is a universal system. Any technical issues a potential commissioner has already documented.
Making use of the first price auction style is fundamentally a guinea pig choice, as in current times, you will be within the initial people who are trying this out in the modern day. Choosing the new and improved system is easier, more appropriate to the times, and permits you to initiate your cash stream with speed.
- It paves the path for the ready appliance of advance bids.
What are advance bids and how do they benefit us? An advance bid allows you to offer ad space to many SSPs and potential clients before reaching out to the ad servers. Now you don’t have to rely on a single SSP, but many, and as a result will gain control through the ability to allow particular sources greater participation than others.
This is good news for you, who are then able to work consistently with your favorite marketing agents. It also ups the amount of money made and many reports would suggest that some have actually managed to make thirty to fifty percent more cash with the use of advance bids.
And so, if you wish to compensate yourself for the gap on the 1st price auction, advance bids are a productive way to do so, and it is attained in an efficient way with the application of second price.
