Sold For More Than What You Should have Paid
link: https://www.hearts-science.com/first-price-auction/
The article cited the fact that in resolving the problem of buyers losing auctions when they shouldn’t, Single Shared Platform (SSP) and Demand-side Platform (DSP) have shifted towards first-price auctions. However, researchers have carried out real-world investigation and found that changing to first-price auctions actually increases costs, even with mitigation in place. Instead, the article suggests a shift to a programmatic second-price auctions to lower buyer’s extra price and ensure that the highest bidder wins. The problem of second-price auctions has been that sometimes the highest bidder loses in a multi-staged second-price auction (see below graph for example), which promotes the shift to first-price auctions. Thus, the article proposes that a single second-price auction is an optimal online ad sales system because it always ensures that the highest bidder wins, it allows a simple dominant strategy, and it only requires a single auction (low latency).
This article closely relate to what we have discussed in class about the difference between first-price auction and second-price auction, that bidding truthfully in second-price auction is a dominant strategy, whereas bidding truthfully in a first-price auction would result in paying extra money (low payoff). The article deals with a special case of multilayer second-price auction, and resolves the problem that the highest bidder sometimes loses by a single second-price auction. While the conclusion of this article may be somewhat simple since Facebook and Google already used this system for several years, the migration of auction system can be more complex than expected, because the programmatic ad auction must also become trustworthy and predictable. Establishing credibility towards this new system and forgoing the long problematic conduct can still be a hard problem for publishers.