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Really, auction types matter?


There are lots of posts about using first price auction will increase the transparency in the programmatic industry. This article provides new insights about what else needs to done to solve the most essential problems apart from just changing from second price auction model to first price auction model.

This article is a quite interesting read. It first introduces the ongoing trend in the ad industry. Due to angry customers who are quite upset with their manipulative auction mechanism, the industry is having a discussion and debating about the transparency of the two auction types – first price auction and second price auction. Apparently, the mainstream is saying that changing the auction type from second price auction to first price auction for Supply-side Platforms (SSP) will solve the lack of transparency issue once and for all.

However, the author of the article does not agree and I think he has a point here. He gives an example of going to grocery stores that all the items are labeled with a price range rather than a single, distinctive price. Only when you decide to buy the item and go checkout does the cashier decides and tells you whether to charge you the full price or some price within the range. This is exactly what is facing by the buyers these days because the ad industry creates a loophole as the ruling organizations do not require SSPs to disclose and show buyers the auction type information. And this loophole will continue to give SSPs the chance to manipulate the auction process and help them to get the best deal no matter what auction types they claim they are changing to. For instance, even the default auction type is set to first price auction, SSPs can still change the auction type to second-price auction if it gives them more benefits, as buyers do not have info about the other buyers’ action and the about the auction itself.

This links back to what we learned in class. In class, we have learned different auction types and players’ dominant strategy in each auction type. Knowledge about this topic should give us an edge when we are in an auction and should help us to better assess the benefits and risks involved. However, if the essential problem – the loophole in this industry doesn’t get well-addressed, we will never know what situation we are in and we will not be able to leverage our knowledge about auctions as rational thinkers. Therefore, although we learned in class that auction types really matters because we need to adopt different dominant strategies, here, the auction types do not matter anymore as we cannot even making sure we are getting the auction type the SSP states. Therefore, the key issue here for the programmatic industry is not really about the transparency of different auction types, but more about sound regulations of the industry to solve the information asymmetry issue and the loophole.




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October 2017