Programmatic Advertising
Programmatic advertising refers to the practice of using software to purchase digital advertisements. Supply side platforms such as OpenX, Rubicon Project and Index Exchange are all organizations working to automate the ad purchase process.
Currently, the majority of these types of platforms operate using a second price auction format. In a second price auction, the selling price of an item is determined by the highest bid, however the highest bidder only pays the amount of the second highest bid. As a result, second price auctions are typically less expensive for buyers as by bidding their true value they may achieve a positive payoff.
However, several automated purchase platforms use practices such as dynamic floor prices which can “harm” bidders in the auction. This refers to when sellers raise the minimum price for which they’d be willing to sell their item in real time during the auction. The floor price value is typically not shown to bidders, so they do not know what the minimum price they can bid is. If the winning bid is above the price floor and the second highest bid is below it, the highest bidder will have to pay the value of the price floor rather than the value of the second highest bidder. This implies a lower payoff to the bidders. As a result, second price auctions can begin resembling first price auctions in terms of the payoff available to buyers.
In an effort to increase transparency in these auctions, many platforms are switching to first price auctions and are also providing buyers with information regarding what kind of auction is taking place. However, in the long term, this could be less profitable for sellers as buyers will opt to bid values lower than their true value as they will have to pay the full amount of their bid value, which would cause lower profit margins for the sellers.
Article: https://digiday.com/marketing/programmatic-advertising-readying-first-price-auction-era/