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Rubicon Project CTO: ‘Second-price auctions still drive liquidity into the system’

The Rubicon Project is an example of a supply-side platform (SSP), which serves as a technological platform that helps website publishers maximize their revenues by channeling ads through an automated system. The main focus of this article is on the Rubicon Project’s CTO, Tom Kershaw, who claims that despite the recent shift towards first-price auctions, second-price auctions are still valuable.

Recently, The Rubicon Project suffered a hit as The Guardian sued the company for its hidden buyer fees. These fees, which reduced the revenue that The Guardian was receiving from advertisers, were supposedly used to compensate for the “considerable and compounding costs of performing an open auction.” (http://www.thedrum.com/news/2017/03/28/the-guardian-suing-adtech-outfit-rubicon-project-breach-contract) The Rubicon Project is not the first SSP to lack transparency in this way. Many advertisers are often unaware of how many intermediaries their budget is passed through before reaching the publisher. Each intermediary may be taking its own commissions and fees, some of which may have been hidden to the advertiser, as with the Guardian. In order to fix these transparency issues, first-price auctions have become more desirable, where buyers shade down from their true values. As we discussed in class, the reason it is best to shade down in first-price auctions is because the winner pays the price of his bid. If the bid is at the true value, the buyer receives no surplus.

Kershaw, argued however that second-price auctions are still valuable because they drive money into the system by allowing buyers to bid at their true value rather than shading down their bids. However, since there is a trend towards first-price auctions, it would not be feasible to serve as the only company who second-prices. Therefore, Kershaw claims that the best solution is to maintain a balance in which ads need to be differentiated based on their value. Ads with high values will be first-price auctions, whereas ads with lower values will run second-price auctions. Therefore, hopefully this balance between first-price and second-price auctions will optimize the interactions between advertisers, publishers, and SSPs.

http://www.thedrum.com/news/2017/10/03/rubicon-project-cto-second-price-auctions-still-drive-liquidity-the-system

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