Facebook’s Advertisement Auctions
https://adespresso.com/blog/everything-need-know-facebook-ads-bidding/
This article talks about the bidding that goes on behind Facebook ad bidding. The bidders with the highest price generally win (but not always), but they pay the lowest price possible. That is, they pay just a bit above the lowest bid. However, the bid value is not the only thing that is factored when choosing a winning bidder. Facebook also takes into account your “relevance score,” which relates to positive engagement with your advertisement. Facebook also looks at “estimated action rates,” which is an estimation for how much people will interact with your advertisement.
It is interesting, because the auction system used does not perfectly match the first-price or second-price auctions that we learned about in class. While it is closer to the second-price auction in that the winner pays less than their own value, this type of auction actually sees the winners pay significantly less than their value (assuming there is a decent range in bids) rather than just the next lowest bid.
The other factor that makes this a lot different is that Facebook has more than one advertisement slot to give out. Unlike the auctions we studied in class, there is not just one winner when it comes to the Facebook auctions. This makes it difficult to figure out an optimal strategy. It certainly seems as though the optimal strategy would be to bid a bit over your value, because you’ll almost always be paying less.