Facebook Ads and VCG Auctions
Facebook doesn’t want you to stop using Facebook. Facebook also wants to make money by serving ads. Those seem like orthogonal objectives, no? The worse their ad algorithm, and the more irrelevant the ads they serve you, the more likely you are to switch to another social network (Myspace, if you’re desperate enough, though I don’t envy anyone there). These ads are also integral to the News Feed experience, as they take up big swathes of screen space as you scroll through the pictures of your friends have better times than you ever will. Therefore, relevancy is of massive importance.
Facebook could use the more simple optimized-for-relevance second-price auction model as utilized by Google and Twitter, but relevancy isn’t weighted as heavily as it needs to be. Therefore, Facebook uses a modified version of a second-price auction called a Vickrey–Clarke–Groves (VCG, V->Nobel Prize winner William Vickrey) auction, which analyzes all content in a person’s News Feed, and creates a quality score based on relevancy to content. It then combines quality and bid price to create a new price for a bidder, and runs the auction. This new algorithm, while not completely social-welfare-maximizing due to the addition of pricing, is much better for relevancy, and for the end-user in the long run.
Source: http://www.fool.com/investing/general/2015/09/27/facebooks-ad-system-is-based-on-a-decades-old-econ.aspx