Things to Know about Google’s Implementation of the First-price Ad Auctions
Last week, we’ve mentioned the Auction Theory during lectures and when people normally use it. When sellers are not certain with the true prices the buyers willing to pay for an item, they usually choose to have an ascending auction. The buyers would give out their prices during the auction and whoever has the highest price would be able to buy the item with that price. This type of selling strategy is also used in Google Ad Exchange, and they are currently testing with their new ways of auctioning to see which would work out the best for their customers.
As described in the article, “What to know about Google’s implementation of first-price ad auctions”, Google is currently switching from the previous second-price auction to a first-price auction, hoping to standardize the market and make the prices clearer. Instead of paying some money over the runner-up bid, the buyers are able to pay for the prices they are willing to pay, which gives them more transparency in this buying process.
Secondly, by transiting into the first-price auction, Google’s Ad buyers are no longer experiencing the bid shading process, in which people are giving prices below what they are expecting and this technique had been largely criticized. People are hoping the first-price auction would make the process easier and they are going through a normalized auction process.
Furthermore, this transition is a benefit for the publishers. After the bidding process, Google will release the buyers’ group data(privacy-protected), and the publishers can get a better sense of the people who are interested in their inventories as well as the price range people are willing to pay, thus provide a better service to their target customers in the future.
However, there are also some concerns from the publishers while Google Ad Exchange is converting from second-price auction into first-price auctions. In order to make the market clearer, Google Ad Exchange set up additional restrictions and somehow limited the publishers’ ability to do smart pricing, this brought some questions from the publisher and they are waiting to see how that would turn out in the future.
Overall, the movement from second-price auction to the first-price auction of Google Ad Exchange has brought up some benefits and concerns, and they are still in a testing stage. However, this is an example of how applying auction theory could bring to our market and how we should adjust our strategy accordingly in reality.