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Hulu switches from second-price to first-price auctions for its advertising

Hulu Moves To First-Price Auctions For Its OTT Inventory

This article describes how Hulu is shifting from their previous second-price auction format to a first-price auction format for  advertising. Hulu made this decision in order to cut down on excessive rules, increase transparency, and give advertisers more control over their buys. According to the author of the article, this switch to a first-price auction does not come as a surprise, because both Amazon and Google use second-price auctions for the advertising on their streaming services, so it was about time that Hulu did the same. Lastly, the article points out, Hulu is giving very short notice to advertisers. They  switched from second-price to first-price only one week after they made the announcement.

This article relates to our class because we learned about auctions in general, and we are now shifting into learning about auctions and advertising. It is interesting that Hulu has decided that a first-price auction is more transparent, because as we have learned, a first-price auction has no dominant strategy, and thus bidders tend to shade their bids down. Without a dominant strategy, it seems as though there is a lack of transparency because the bidders will likely shade their bides below their true value, by some amount, in order to increase their payoff. However, in a second-price auction, bidding truthfully is a dominant strategy, which seems to be more transparent because everyone is bidding truthfully and there is no method for increasing your payoff other than bidding your true value. Overall, it will be interesting to see how first-price auctions do for Hulu, as we have learned in class that internet advertising has had a long-standing tradition of being sold through second-price auctions, and that type of auction seems to work very well in most contexts.

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