First Price Auction vs. Second Price Auctions: Which one should be used?
Article: https://roxot.com/blog/second-price-auctions-potential-gaming-system
Google Ad Manager, Ebay and more companies adhere to second price auction in their live online auction events. In a second price auction, the winning bid does not pay his or her bid but the second highest bid in the auction. Many companies choose this process because it is deemed as a method that would encourage bidders to bid as high as they can. This is clearly different from a first price auction where the winning bidder pays the bid that they submit. According to the article, the second-price auction model loses its advantages when implemented in the real world due to the extra variables that become added onto the equation.
One problem of trying to run an idealized program of the second price auction is that the program only “seems” fair to everyone that is involved. Several reasons include the time limit that is set, bidding strategies that cause huge gaps between the first and second place, and the benefits that come only when a single item is auction. For better or worse, companies that run second-price auction model with crucial limitations affecting a publisher’s position in selling their item, thus influencing their revenue. Because advertisers are able to game the system and employ bidding strategies that result in low bids or huge gaps between the 1st and 2nd highest bids, the current motive of the company is proving refutable.