Issues of Transparency in Advertising Auctions
We learned in lecture about advertiser use of second-price auctions in order to determine amounts paid and who gets to advertise, but as shared in this article, developments have occurred in this sphere which have opened up possibilities of using first-price auctions for these purposes instead. Due to practices such as “header bidding”, simultaneous bidding on one piece of inventory by supply-side platforms (SSPs), and raises of price floors without buyer knowledge, second price auctions have grown less and less transparent. In efforts to fix this, certain SSPs have decided to use first-price auction models instead. This shift has posed a new set of problems, however, because now buyers often have no knowledge as to which type of auction they were participating in.
It’s interesting to consider the ramifications of either type of auction on the actions of bidders and the resulting money made by SSPs and publishers. I personally feel as though second-price auctions are better in ensuring a fair auction, because by paying the price of the second highest bidder, no bidder can be ripped off by having a bid much higher than everyone else’s. Pros and cons exist for both methods, but regardless of auction type it seems to me that what matters most is that buyers are aware of the auction structure being used. The dominant strategy for a second-price auction and a first-price auction are different, as it’s optimal to bid a true value in a second-price auction but not in a first-price auction. Due to this, the bidding strategies of participants would likely be different depending on the auction structure. However, this transparency is not always the case, and now the biggest obstacle faced by buyers is that they often are in the dark about what type of auction they’re participating in.