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Transparency in First and Second Price Auctions

In class we have learned about the benefits of second price auctions compared to first price auctions. The dominant strategy in a second price auction is much simpler because the dominant strategy for bidders is simply to determine their personal value of the object and then bid that, whereas a first price auction’s dominant strategy is to bid a value below your true value that can be difficult to calculate. The article discussed how because bidders in first price auctions do not want to bid and pay a value that is excessively higher than the second highest value, the sellers end up making less profit, since everyone’s bids tend to be lower.

This makes it seem as though second price auctions are ideal and leave both buyers and sellers satisfied, however, this can only work if the buyers are actually aware of what kind of auction they are participating in and what the dominant strategy for that type of auction is. This article discussed how many sellers confuse their buyers by withholding information or giving false information about the auction type. This leaves buyers confused and discouraged and ultimately has a negative impact on both sides of the transaction. Platforms like OpenX, Index Exchange, and Rubicon Project are trying to make sure that buyers are informed so that they bid appropriately and in a way that optimizes social welfare. They are also trying to shift into using first-price auctions more often, although the article says that this would not be a good long-term strategy.

 

Programmatic advertising is preparing for the first-price auction era

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