A Balance between First and Second Price Auctions
http://www.thedrum.com/news/2017/10/03/rubicon-project-cto-second-price-auctions-still-drive-liquidity-the-system
In this article, the author interviews the Rubicon Project’s CTO and ask hims why his company is transitioning to a hybrid auction model from a complete second price auction model. Tom Kershaw, the CTO, begins by explaining that his company is definitely not moving completely towards a first price auction. He argues that going completely towards a first price auction would cost his company a lot of potential liquidity because people would start shaving and reducing their bids as opposed to bidding their true value. However, Kershaw explains that there are currently a lot of transparency issues with the second-price model because it becomes unclear for buyers what type of auction they are bidding in. On top of that, there are companies that create a price floor after the bids have come in, so the winning bidder has to pay a lot more than they originally expected.
Kershaw explains that the hybrid model will allow Rubicon Project to use different auction types based on different markets and the respective types will be determined by machine learning algorithms that Rubicon Project is developing. Kershaw also explains that he plans on increasing transparency by reducing prices and cutting down transaction fees. Apparently, in the past, a bidder might have won an item, but he or she would then be charged with significant buying fees after they won. The new strategy is to reduce these prices and clearly putting the actual prices on the statements, so everyone understands what Rubicon Project is actually charging.
This article is closely related to what we are discussing in class because it really highlights some of the pros and cons of first and second price bidding models. Like Kershaw mentioned, the second price auction allows the users to bid their true value because they know that they will get to pay the value that is second highest. Unfortunately, because many companies are adding price floors after the values come in, it no longer made sense for bidders to bid their true values because it is no longer they way to maximize profit. This relates to how we discussed strategies change for bidders based on if the seller knows what the values are in an auction. This article also is similar to our discussions in class because it mentions how first price auctions are not the most effective in all regards either because bidders will no longer bid their true value. Bidders will start trying to shave off and reduce their bids to save money.