First-Price Auctions Are Driving Up Ad Prices
https://www.emarketer.com/content/first-price-auctions-are-driving-up-ad-prices
This article concerns how programmatic platforms interact with different auction types, namely the first-price and second-price auctions. Programmatic advertising refers to the use of computer software to purchase digital advertising, an automated version of the purely human oriented method, in which there is a high degree of manual work. The article discusses how previously, second price auctions were the modus operandi on programmatic platforms. However, recent trends have indicated that first price auctions in fact result in a greater yield for the publisher than second price auctions. In fact, this greater yield is substantial, due to a near 60% increase in CPM. One of the primary reasons why programmatic platforms have adopted first price bidding is due to the advent of header bidding, defined in the article as ” multiple platforms simultaneously bid[ding] on the same inventory”.
I found this article incredibly interesting after what we learnt in class about the different ways in which buyers tend to operate in first price vs. second price auctions. Common conception is that in first price auctions, buyers tend to shade their bid a little, so that winning would guarantee a profit, as opposed to do a net loss or wash. In second price auctions, it is optimal to bid your true value, as this is the dominant strategy regardless of what other bidders do, since it is ultimately the second highest price that a buyer pays, not the highest. Conceptually, one would think that buyers would tend to pay the same for both the auctions, with the shaded bid of the highest bidder in a first price auction possibly equaling the second highest bid in a second price auction. However, this article mentions that there was a dramatic difference in the profit publishers took home in the different bidding formats. This would serve to indicate that buyers in the first price format are actually not shading their bids enough. They may be paying much more than the market value of the ads they’re purchasing. A reassessment of the true value of prospective ads seems to be in order for buyers.