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In the Dark About How to Bid

In programmatic, buyers sometimes don’t know what type of auction they’re bidding in

This article discusses how buyers aren’t always sure about the type of auction they are participating in when they bid for programmatic ads. First, programmatic ads are ads that attempt to target the most appropriate audience for an ad based on different demographic data instead of just placing ads with the hope that they will be seen by the largest number of people possible.”Programmatic media buying, marketing and advertising is the algorithmic purchase and sale of advertising space in real time.”(Russell O’Sullivan) This is far more effective because the ads are seen by people that are the most likely to act on the ads and possibly purchase the product or service.

According to this article, second-price auctions have been the norm in terms of auction format, but there has been a recent influx of first-price auctions in programmatic bidding. Additionally, the lack of clarity about auction formats comes from the fact that these transaction are not only between the buyers and the sellers that sign the deal. This article highlights that a complex advertising supply chain can exist, making it difficult for buyers to audit the firm that they are working with and get information about the auction format. There are also some firms that simply use both first and second price auctions to appease their clients. This makes it difficult for buyers to figure out how to bid.

This ties into our class discussion about how first-price and second-price auctions call for different bidding strategies. Without knowing if the auction is a second-price action or a first-price auction, it is unclear if a bidder should bid their true value or not. In a second-price auction bidding your true value is a dominant strategy but if you go in with that mindset and the auction turns out to be a first-price auction, it could be very costly for a buyer who now has to pay that price when they expected to pay the next highest price instead. Also, if you go in assuming that it is a first-price auction then you are likely to underbid in order to increase your payoff. However, if the auction is a second-price one and you underbid, you could lose the item at a price that would have been below you true value for it. In a nutshell, the format of an auction has major implication, and as a result not knowing the format can have equally major implications of how bidders fair.

Other Sources: http://www.stateofdigital.com/what-is-programmatic-marketing-buying-and-advertising/

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