Walmart’s Advanced Second Price Auction System
As we near the holiday season (some may even say we are already in it), holiday shopping is ramping up. In the current economy, Walmart’s cheap prices make Walmart.com one of the go-to websites for holiday shopping. As the US’s second largest ecommerce platform, Walmart.com’s sponsored search slots are incredibly valuable, especially in light of the coming holiday shopping days.
Walmart has recently changed its sponsored ad placement algorithm to an advanced second-price auction. Advertisers submit their bid on the maximum they are willing to spend per click, and then the platform runs auctions in real time for each search, to determine which ads will appear in which order on the search page. A pool of sponsored products is first chosen based on relevance to the search. The platform then chooses, from this pool, the ad that goes into each slot based on their submitted maximum bids, and charges the advertiser based on the second highest bid, which may or may not be less than their maximum bid.
In class, we discussed how second price auctions make it optimal for bidders to bid their true value. This way, more bidders will be incentivized to bid their true price, because they will never overpay, and their product will always be relevant to what shoppers have searched for, which means a click is more likely to translate to a sale. This makes the second price auction schematic very efficient for bidders. The relevance clause of the algorithm also maximizes profits for Walmart.com, because the more relevant the ad is, the more likely it will be clicked on, which means the company can collect more revenue. The second-price auction system has been used by Amazon for a while now, and having been picked up by some of the largest ecommerce sites, it shows the effectiveness of this system for both the advertiser and the platform.
Link: https://www.insiderintelligence.com/content/consumers-seek-value-search-advertising-increasingly-important-sponsored-content