Confusion in Ad Auction Type Harms Buyers
In this article, the author discusses how many companies that sell ads don’t provide much information about the auction. Many of these companies do not even disclose what type of auction the buyers are bidding in. Without any indication of what type of auction they are involved in, ad buyers have little indication on how to bid. The author does not make much indication as to whether or not this is intentional on the part of the ad seller. It would certainly be beneficial to have an ad buyer think that they are involved in an auction in which it is dominant to bid truthfully when it is actually an auction where it is a dominant strategy to bid less than your true value. This would lead to higher bids than expected, and a higher price fetched for an ad. Whether or not it is intentional, ad sellers are profiting from this confusion.
This relates very closely to the auctions we have been discussing in class. We have talked about the use of auctions, second price and modified second price, to sell ads. We have also discussed the dominant strategies of first and second price auctions and how they differ. If potential ad buyers don’t even know what auction they are bidding in, they will not know what their dominant strategy is. In second price auctions, it is dominant to bid truthfully, but in first price auctions it is actually dominant to bid less than your true value. The author specifically mentions cases where ad buyers think they are taking part in a second price auction, and therefore bid their true value, only to find it was a first price auction and they end up paying more than they would have for an ad. This uncertainty in auction type would likely lead to large fluctuations in ad selling prices as there would be no way to predict bids from buyers, and no way for buyers to predict other buyer’s prices.