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Do Programmatic Ad Buyers Know What Type of Auctions They are Using?

Programmatic ad buyers, usually used to refer to when advertisements are being bought and auctioned off using software, often times do not know what types of auctions they are using. According to multiple sources, campaigners often sell their auction saying that it is a first price auction, when in reality it may be a second price auction. There is nothing besides the verbal announcements to verify the type of auctioning. This lack of clarity makes it difficult for auctioneers to determine how to bid, because their dominant strategy differs dramatically based on the different types of auctions. If the auction for said advertisement is a second price auction, one should bid their true value, because what you bid has no direct say on what you pay, solely on whether or not you win. On the other hand,  the best strategy for first price auctions may be to bid bellow your true value, or how much you’re willing to pay because it will be the number you pay if you win.

Most costumers who are participating in these programmatic ad auctions do not even understand this gap in knowledge, and thus do not know how to speak up and ask for more information. In turn, it is hard to threaten these DSPs into changing their strategies, because the only way to enforce change would be to get a large customer to complain and offer to change auctions, but since this is not common knowledge, not many have actually taken the steps to stand up.

Well, what are the advantages to not being clear with the types of auctions? Why would platforms be doing this? One might think it would be to their advantage to be transparent with the auction types, but this is not quite true. If the buyers think that this type of auction is a first price auction, the difference between the bid and the ‘cost of impression’ will end up being given to those involved in the platforms. This difference is typically one cent or two, but at the end of the day, if billions of transactions are moving through these platforms, those few pennies turn into a significant amount of money.

The last struggle which makes solving this problem very hard is the fact that it is extremely difficult to prove faultiness, and take this situation to court. These transactions and records thereof are not readily available. It seems the only way to fix this problem is to educate all buyers to see how this effects them, and possibly even the value of said advertisements, and encourage buyers to pressure platforms into changing their strategies.



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October 2017