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An Auction Hybrid

At Rubicon Project, a company specializing in online advertising based in Los Angeles, recently announced its goals to offer greater transparency to its partners, tackling issues such as some suppliers mislabeling the type of auction they are running or raising the price floor without their buyers knowing. In this article, The Drum interviews the chief technology officer, Tom Kershaw, about the company’s outlook on its attempts to balance the first and second price auctions in addition to its progression towards server-to-server bidding and supply path optimization. Kershaw states that second-price auctions brings money into the system and allows buyers to bid their true values rather than having them guess at shaving and lowering their bids. However, Rubicon project also aims to value impressions properly, and thus they will have some high-value ads with first-price auctions and others will run with second price auction, with the type of auction being run stated very explicitly. Distinguishing between which ads would best work at first price auctions is done using machine learning algorithms in an attempt to achieve the best of both worlds.

In this article, the pros and cons of first price and second price auctions are discussed, and many of the points we learned in lecture were mentioned. For example, one of the advantages of the second price auction is that it allows buyers to bid their true value, since the buyer with the highest bid ends up paying not their own bid, but a value lower than that based on the other advertisers’ bids. In a first price auction, buyers would have to worry about how much to shave off of their true value for their bid in order to both win and have positive payoffs. As such, the second price auction does indeed bring more money into the system. The fact that the highest bidder does not pay his own value, however, has also led to issues regarding transparency. The article describes the efforts of Rubicon Project, an adtech company to find the best of both worlds. The company attempts to increase transparency and value impressions correctly using first price auctions while keeping the advantages that the second price auctions bring.

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

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