Programmatic advertising is preparing for the first-price auction era
Programmatic advertising is preparing for the first-price auction era
Usually, when it comes to programmatic advertising, second-price auctions have been used for ad buyers. However, a lot of the time, these buyers are held in the dark by some supply-side platforms, of what type of auction it is and therefore complicates their bidding strategy. Because of this withholding of information, some Exchanges are starting to also implement first-price auctions along with the second-price auctions to help out the ad buyers. This quote demonstrates the need for different types of auctions in this industry: Tom Kershaw stated, “Generally speaking, second-price auctions are run on display and banner ads, while first-price auctions are typically run on some video inventory.” However, while some companies are starting to change to first-price auctions, some argue that it cannot be a long term strategy as it will alter the movement of inventory and will result in lower values for bids, which will hurt the supply-side platforms.
As you can see, the main issue seems to be that because of the lack of transparency among some of the supply-side platforms which does not disclose essential information to buyers, people are looking for a different way to make this process fair for the buyers. However, while it is acknowledged what are the advantages and disadvantages of switching to first-price auctions, it will disrupt other aspects in the long-term.
As we learned in class, first-price auctions have a dominant strategy of bidding less than your true value while second-price auctions have a dominant strategy of bidding your true value. Therefore, it makes sense that bids in the first-price auctions would be less as people no longer have as much of an incentive to bid more. Therefore, while there are many sides of this issue, it seems like the solution is to make sure the type of auction is disclosed to the buyer and to then continue using the second-price auction. In this way, both sides will be content with the outcome.