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Apple’s Second Price Auction and Targeted Advertisements



In class, Google’s not-so-generalized Generalized Second Price Auction was discussed. This was very interesting, and this generalization of the second price auction are used across search engine platforms – Yahoo! and Bing both included. Apple also began using the second price auction to create advertised content within their app store. The concept of a Cost Per Tap (analogous to the cost per click model discussed in class, except applied to those touchscreen application. What I found particularly interesting is that Apple elected to not follow Google’s Generalized Second Price Auction to manage a number of ads. Although Google’s auction earns a lot of money for the company, Apple instead elected to maintain a standard second price auction for a single slot advertisements within a search result. The single ad would have high value; but surely Google would earn much more money from selling multiple advertisements per search result.

Apple’s method of choosing relevance within the advertisement apparently includes the ability to select a particular audience of the search result. Therefore, Apple in particular is allowing for targeted advertisements, and is likely earning an even higher revenue for this ability. The way targeted advertisements fits within the picture of the picture of second price auctions is very interesting: this allows to create multiple slots to purchase within each search result. Because of this, search engines will absolutely be able to generate even higher revenue – different advertisers will have higher values for particular targets within a search result.

It is interesting that the socially optimizing allocation of advertisers to specific slots within a search result may actually result in the “social cost” of invading privacy to the general public. Through the next years, as privacy becomes further invaded and companies are able to generate much more revenue, it will be interesting to see how these additional externalities will affect the second price auction.


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