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Google’s first price auction roll out

Google Ad is shifting to a first price auction to keep auctions standardized across the Ad tech market. With this change, ad buyers will need to adjust their current strategies at the second price auction. Unlike the second price auction where bidders just need to bid at their true value and pay the second highest price, the first price auction requires ad buyers to pay what they bid. This transition has caused price to fluctuate. To help ad buyers transition to this new type of auction, bid shading became an effective method in readjusting these spikes. According to the article, it is a “DSP algorithm [that] determines a kind of midway sweet spot between first- and second-price for a buyer.” 

I find this interesting because from the lectures in class, I learned that when it’s first price auction, the nash equilibrium for bidder with value Vi = [(N-1)/N]Vi. This equilibrium is difficult to find when you don’t know the total number of bidders at the game and what values they are bidding thus bidders run the risk of overpaying. With the introduction of the bid shading technique, it helps to reduce the risk of overpaying for the bidders, but bidders might be charged for using the method. Even though the bid shading method is more beneficial to bidders than publishers, the mid range price might still be higher than what it would have cleared out during second price auction, thus the publisher will still gain from it.


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