Google Switches to First-Price Auction
https://adexchanger.com/online-advertising/google-switches-to-first-price-auction/
In March of 2019, Google announced that it would shift towards a first-price auction for Google Ad Manager, which is Google’s publisher exchange and ad service product. Google was one of the last major publishers to shift to a first-price auction, nearly two years after other major exchanges began testing first-price auctions. As one of the key stakeholders in the second-price auction market, Google finally decided to cede its advantage. Sam Cox from Google claimed that shifting to first-price auctions would “increase transparency, reduce operational complexity for sellers, and make it easier for buyers and agencies to properly value inventory”. As a result, Google will also get rid of its “last look” mechanism, which had previously given buyers better information regarding ad inventory and out-bidding other buyers to win impressions. With all of these changes, Google is looking to compartmentalize its ad exchange business to simplify and improve its product revenue. However, that’s not to say that it’s eliminating second-price auctions on all of its platforms – it will continue to retain second-price ad auctions on YouTube, Search, and AdSense until the end of the year.
Google’s actions from just over half a year ago illustrate precisely what has been taught in class regarding truthful bidding. As a result of having multiple rounds of bidding, truthful bidding in multiple second-price auctions no longer became an optimal strategy for buyers. That’s because bids are competing not only against its own bucket of bids but also multiple others. For example, a buyer with a $7 bid might compete against a $4 bid, meaning the buyer would only pay $4 (or in this case, $4.01) for the impression. However, this seems great until that buyer loses in the next auction to a $5 bid. Moreover, Google’s “last look” mechanism that it has now scrapped was similar to the concept of bidders being able to look at each other’s bids before submitting final bids. Combined with a second-price auction, this mechanism perhaps made the bidding process more complicated than it was meant to be. By changing to a first-price auction and consolidating the rounds, buyers can now begin by bidding below their truthful values, and ultimately raising their bids up to their final truthful values.