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Comment by oldsklgdfth | Hacker News Reader

As a tangent, I've heard the Google and others are moving away from second price auctions.

Does anyone have more info on this topic?

I worked for several years in the ad tech space. Display ads on the open web are...something else. IMO, second price auctions don't work well in the online ad world.

In the real world, you know:

(1) all bids are submitted before being reviewed

(2) the highest bidder is actually going to pay the second price, and there's some friction in the form of a buyer's premium that makes it cost inefficient to immediately resell the item

Neither of these hold in the ad space.

Re (1), if you're trafficking ads through GAM, Google gets a chance to see the highest bid before deciding to commit to a bid.

Re (2), a publisher can insert fake line items that dynamically activate on a per-impression level. The goal of the fake line item is to be a stalking horse to artificially inflate the second-highest bid so that the second-price auction is effectively a first-price auction. If the publisher accidentally bids too high and wins the auction, they can just run the auction again.

I also work in ad tech (lead the algo team in job ads).

Second price auctions online are great, but they're not strategyproof. You still need a bidding strategy.

For thin/small/sparse markets they simply don't work. You need a first price auction.

Google definitely game their own 2nd price auction, but this is just one reason amon many they're not strategyproof.

Do advertisers even control their bid in the auction? In my experience, not fully.

My job is to write algos that optimize the bid on behalf of clients.

Most pay per click ad platforms have an API that let you set the bid.

I also work in this field,

> Most pay per click ad platforms have an API that let you set the bid.

even when you are let to set the bid, usually the auction is not conducted just based on your bid but also adjustments from the probability that you will actually pay out

I’ve been a buyer for 8 years are so on ttd and another dsp but haven’t heard of the probably of paying out thing - can you share more info on that?

If you are bidding on a pay per click basis, typically your bid will be adjusted to expected revenue based on the probability someone actually clicks on your ad. For CPM ads this probably doesn't apply.

This is not for open web exchanges, referring more to stuff like adwords, facebook, etc.

Ah shoot that makes sense I was so confused. I was thinking for programmatic the ssp was reducing a bid based on whether they expected the advertiser to actually pay haha

i phrased it poorly

Right, this is why I said it's not strategy proof.

The bid is just an input you control into an opaque function where the output is some cost and conversions

I’m not supply side, but I thought they could just a floor price? Or is that only for pmps?

One problem with second price auctions is their lack of what is known as "credibility". Google has both the incentive and opportunity to lie to the highest bidder about what the second-highest bid was, so they can charge more.

They never literally did this, but ended up doing some convoluted scheme involving subsidies and rebates that, according to a recent lawsuit, amounted to something equivalent.

First price auctions don't have that problem -- you know exactly what you should pay if you win.

Depends a bit on the subcategory, but for programmatic video with real time bidding basically the whole industry started second-price, then moved to first price (different entities, such as exchanges, felt they wanted to extract more profit) and these days it barely qualifies as an auction process due to the amount of "side bidding".

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