Google’s Ad Manager Will Move To First Price Auction
https://adage.com/article/digital/google-adx-moving-a-price-auction/316894
Early 2019 Google announced that the Google Ad Manager would move from a second-price auction bidding to a first-price auction bidding. Previously, when Google operates under the second-price auction, which is similar to eBay. In the second-price auction, the highest bidder will pay the second-highest price instead of the highest bid. The shift from second-price auction to the first-price auction would result in a $48 billion resonance across the programmatic landscape. This change will be a disadvantage to marketers who are used to the system operated under the second-price auction because the demand-side platforms are optimized to perform under the second-price auction. In this case, the publishers would benefit from this shift with short-term revenue, but as soon as the buyers see their actual value in the first-price system, the revenue will slowly diminish. Under this first-price auction, it’s optimal for buyers to “bid shading” such that they bid below their true value to make sure that they don’t bid too high that ends up losing money.
The shift from the second-price auction to the first-price auction would not impact the ads on Google search and other Google properties that deliver advertisements. In general, this would affect the marketers the most on the demand-side platforms because the demand-side platform has already invested a lot of money in algorithms and machine learning to optimize the bidding strategies under the second-price auction. This move would require time for buyers and sellers to adjust their programmatic landscape. In my opinion, it would be better for Google to operate under the first-price auction because both the supply-side and demand-side platforms would agree on such a system that they both pay the average price. Although it might take time for the demand-side platforms to adjust to this new system, it would be optimal for both the demand-side and the supply-side platform since the supply-side has adopted the first-price auction. In conclusion, adopting the first-price auction the dominate strategy for buyers would be biding lower than their true to make sure that they don’t over-pay their true value if they win, then that would result in a negative pay-off.