Rubicon Project and the Benefits of First Price Auctions in Online Advertising
The online advertising tech firm Rubicon Project has decided to switch many of its auctions from second price auctions to first price auctions. They cite that, in doing this non-permanent transition, it will help to understand market values more as they hope it will allow more transparency in the auction process. While they understand the benefits of second price auctions for advertising, they are hoping a transition to first price auction, especially for more premium advertising, will help them to understand just how much some adverting is truly valued at for some companies, and in turn help them to get proper and accurate data for their machine learning algorithms. They believe that a hybrid of these two auction methods will continue to drive the liquidity of second price auctions into the system, as to keep prices down and make things more transparent, while first price helps us understand just how much some of these advertisements and services are worth in the long run.
This relates to class and our discussion of the online advertisement industry in recent weeks. We have talked about the methods used to sell advertising while incorporating the ideas of second price auction, where the winner pays the second highest price, and market clearing prices, the method in which we have supply meet demand in a market for many goods, with many examples being tied to this industry. Seeing the auctions actually being written about and used in the industry is interesting, as I did not know that first price auctions had a place in the market. Seeing the benefits of both options laid out for an entire market is something I did not consider when first learning about these concepts.
http://www.thedrum.com/news/2017/10/03/rubicon-project-cto-second-price-auctions-still-drive-liquidity-the-system