Hulu Shifting to First-Price Auction
The article is about how Hulu is shifting away from second-price auctions and instead to first-price auctions. The article states that the company will be “shifting to a less complicated “first-price auction” when selling premium video inventory for its private biddable marketplace.” All this change means is that now the highest bidder will be paying the price they bided instead of paying $0.01 above the second-highest price. Many digital media platforms are now switching to first-price auctions due to the fact media executives believe that second-price auctions do not necessarily reflect the true value of the inventory. Hulu sent out a notice to clients informing them that this switch is getting rid of the complicated rules, increasing transparency in the value exchange, and giving advertisers more control over what they are buying in this new switch.
This article relates to the class topic of auctions. In class, we discussed the differences between first-price auctions (descending bid) and second-price auctions (ascending bid) along with learning about bidders’ dominant strategies in different auctions. In class, we learned how, when participating in a first-price auction it is the bidder’s dominant strategy to bid below their true value. In a first-price auction bidding, one’s true value results in a payoff of zero, and bidding above your true value leads to a payoff of zero or a negative payoff. In a second-price auction, it is the bidder’s dominant strategy to bid their true value because the winner does not affect the price that they pay. In a second-price auction, the winning bidder pays the amount of the second-highest bid instead of their bid. If one bids their true value in a second price payoff, one will have a positive payoff.
Therefore, this article applies to what we learned in class because we learned about the different types of auctions. The article shows a real-life auction and gives the reason why they are shifting from second-price auctions to first-price auctions due to the complexity of second-price auctions. In class, we also saw situations where second-price auctions could get complicated. This article helped me to see how these different auctions impact people and companies in the real world.