Auctions in Programmatic Ad Buying
As discussed in class, there are a variety of different auction structures, ranging from descending-bid auctions to second-price sealed-bid auctions. Each of these auction types have an associated dominant bidding strategy. For example, a bidder should stay in an ascending-bid auction until the true value is reached. In programmatic, a method of advertisement buying, a second-price auction structure where the winning bid pays a cent more than the second-highest bid is used. Programmatic advertisement buying refers to the use software in order to purchase digital advertisement space, as opposed to the conventional process of using human negotiations and manual orders to purchase advertisements. It makes the buying process of ads much more efficient, which decreases the costs associated with buying.
This article highlights a few interesting points, such as the influx of first-price auctions as the market in programmatic becomes more saturated. The problem that arises from this is that the auction structure is not explicitly defined to the ad-buyers. Thus, the ad-buyer is not sure whether or not the auction is a first-price or a second-price auction. Since there are different dominant strategies for bidding in each one, the buyers play a guessing game. This, in turn, is not ideal for the bidder. An associate media director mentioned that vendors tell them that they are using a second-price model in their pitch. However, after the purchases, there is no data to prove it. The buyer does not know the dominant bidding strategy, so as a result, they possibly spend more money than expected.
Interestingly enough, the article states that the dominant strategy for first-price auctions is bidding what they are willing to pay, while for second-price auctions, buyers should bid higher than their true value. By our class standards, we know that this is incorrect. According to lecture, there is no dominant strategy for first-price auctions, while the dominant strategy for second-price auctions is bidding one’s true value. All in all, this article shows the flawed system of programmatic advertisement buying, while incorporating different auction types.
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In programmatic, buyers sometimes don’t know what type of auction they’re bidding in