Rubicon Project CTO: ‘Second-price auctions still drive liquidity into the system
Rubicon Project’s chief technology officer Tom Kershaw discusses the projects’ purpose of solving the header bidding problem in the article “‘Rubicon Project CTO: ‘Second-price auctions still drive liquidity into the system’.” The ad publishing industry is known for selling ads to media partners in a second-price auction format. However, this type of auction is receiving criticism because some claim that second-price auctions have a layer of transparency, creating opportunities for price manipulation. The Rubicon Project solves this problem by offering a hybrid auction model that evaluates an ad’s value level and determines an optimal auction style for the respective ad. In addition, this project offers full disclosure to participants by clearly stating whether or not the ad is being presented in a first or second-price auction format, allowing buyers the chance to decide if they want to participate. The Rubicon Project is already in the market as Amazon A9 and has potential buyers, such as Google and PreBid, looking into it.
Moreover, this article connects to INFO 2040 because it portrays first and second-price bidding. In class, we learned that bidding one’s true value in a first price auction is not the player’s optimal strategy. It is actually better to bid lower than the true value, bi < vi, where bi is the player’s bid and vi is the player’s true value. This strategy is better because the player will yield a positive profit if he wins with bi < vi. If he did bi = vi, then he will have 0 profit if his bid wins. The Rubicon Project suggests that it is not wise to only have first price auctions because it leads to buyers shaving and reducing their bids.
In addition, we learned that in a second price auction the dominant strategy is bi = vi, where bi is the player’s bid and vi is the player’s true value. This is the dominant strategy because bi < vi could result in losing although vi was greater than the winning bid. Also, if bi > vi, then the player could end up paying more than vi if the second highest bid was higher than vi. Also, winning will most often yield a positive profit since the player has to pay the second highest bid. As a result, the Rubicon Project suggests that it is wise to have some second price auctions because these auction formats drive liquidity into the system since buyers are bidding their true values.