First-price ad auction plays first fiddle

11 October 2017

A number of ad exchanges announced they will open the info on the type of ad auction publishers bid in. Why is it even a problem? And what’s the difference between auction types? Let’s dive in.

Ad exchanges use two ad auction types – first-price and second-price

The waterfall ad buying works by the second-price model. Header Bidding works by the first-price model.
The bidder with the highest bid wins. The bidder with the highest bid wins.
The winner pays the price submitted by the second highest bidder plus one penny. The winner pays the highest submitted price.
auction types

Picture: Admixer


An ad auction is performed based on OpenRTB protocol. When user visits a website, requests for bids are sent to buyers, so that they can bid on this opportunity for a user to see their ad. And their bidding strategies for two ad auction types differ greatly.

rtb

Bid request’s place on RTB sequence scheme

Such bid request has a unified structure, determined by IAB standards. The standard of a bid request includes the line, where the auction type is mentioned. Not all participants of ad buying process get these data. A number of ad exchanges led by OpenX want to bring more openness to the process of bidding on inventory. Their initial offer was to prioritize the first-price model and disclose the auction type to the participants.

request

Auction type line in a bid request

The initiative pushed by ad exchanges was to make this variable of a bid request always known to buyers. It wasn’t open before for two reasons. The second-price model has been the primer one for a long time. And when the first-price auction type got popular, some platforms started mixing the two to get their hidden gains.


The idea behind second-price auctions

Closed bids make buyers reflect on an actual price for the inventory. Publishers believed buyers can underestimate its true value. So they liked the idea of a second-price auctioning.

If all bids in second-price auction were known, it wouldn’t make any sense. Everyone could just add a penny to the highest price and win.

In an actual second-price auction, the bids of others are closed. This creates a positive effect. It makes all buyers think of how much they are willing to pay for the lot.

The pitfalls of a second-price auction

Since all bids are closed, everything a buyer gets is a notification of winning a deal. An ad exchange passes forward the final clearing price and not all bids.

This creates different ways for ad exchanges to counterfeit the auction flaw:

  • submitting fake bids
  • faking clearing prices
  • setting high floor prices

Ad exchanges are able to change the clearing price, so that a winner pays the price almost as high as the first one. There’s the price difference between the second and the first highest prices. The second price is supposed to be raised by one cent only. In fact, if the highest price is 6 USD and the second price is 4 USD, ad exchanges are able to set the price in a range between 4.01 and 5.99.

price floor

Picture: Digiday

Admixer’s main business is publisher’s wealth. We care both about the growth of income for our direct clients and overall transparency between industry actors. We support the initiative to make ad auction type known to everyone. Admixer is also heading towards first-price auctioning.

“The second-price auction leaves the space for deception and overpricing. The first-price model creates the dynamic change of bids to ensure a fair and competitive auction,” says Admixer CEO Aleksey Boltivets.

At the moment, we are busy discussing the issue with our partners. Follow our news for the future additional announcements.

Want to learn more?

    Select
    Demand
    Brand
    Agency
    DSP
    Supply
    App Developer
    Others
    Ad Network Owner
    Tech Vendor
    Other/Not Sure
    Select
    Demand
    Brand
    Agency
    Others
    Ad Network Owner
    Other/Not Sure
    Select
    Demand
    Brand
    Agency
    Supply
    Media House
    Others
    Ad Network Owner
    Tech Vendor
    Other/Not Sure
    Select
    Demand
    Brand
    Agency
    Supply
    Web Publisher
    App Developer
    SSP
    Media House
    Others
    Ad Network Owner
    Tech Vendor
    Other/Not Sure
    Select
    Supply
    Web Publisher
    App Developer
    SSP
    Media House
    Others
    Ad Network Owner
    Other/Not Sure
    Select
    Demand
    Brand
    Agency
    DSP
    Supply
    Web Publisher
    App Developer
    SSP
    Media House
    Others
    Ad Network Owner
    Tech Vendor
    Other/Not Sure
    You Might Also Like
    header bidding platform comparison

    Choosing the right header bidding solution is essential for maximizing ad revenue and optimizing publisher yield. This article provides a comprehensive header bidding platform comparison and comparative overview of Admixer.HB+ alongside leading competitors, including Ezoic, Playwire, AdPushup, Freestar, Mediavine, and Raptive. Key Considerations Before diving in, remember that the ideal HB solution depends on these […]

    header bidding platform comparison
    Admixer.HB+ Top Header Bidding Platforms: A Competitive Analysis

    Maximize ad revenue with the right header bidding platform. This guide compares key features and demand sources of leading solutions like Admixer.HB+

    Read more
    AI in Ad tech for Header Bidding

    Artificial intelligence (AI) is fueling a revolution in advertising technology (ad tech). The integration of AI-driven solutions is fundamentally altering industry practices. Header bidding exemplifies this transformation, with AI-powered tools enhancing decision-making, boosting efficiency, and delivering superior outcomes for advertisers and publishers alike. AI-Powered Bidding Optimization Traditionally, bid management involved manual adjustments and rule-based decision-making. […]

    AI in Ad tech for Header Bidding
    The Role of AI in Ad Tech: A Header Bidding Perspective

    Discover how AI is revolutionizing advertising technology, including header bidding. Learn about optimization, fraud prevention, personalization, and the exciting future of AI in ad tech.

    Read more
    header-biddign-data-privacy

    Data has become an incredibly valuable asset, especially in the hands of reliable publishers. Advertisers rely on insights into audience behavior and interests to refine their campaigns. However, navigating the balance between monetizing this data and safeguarding user privacy in advertising, all while complying with increasingly stringent regulations, is vital. Header bidding, while increasing revenue […]

    header-biddign-data-privacy
    Data Privacy in Advertising: Ensuring Compliance and User Trust

    Learn how publishers can navigate header bidding while safeguarding user privacy. Explore strategies for compliance, consent, and building trust in data-driven advertising.

    Read more

      Stay updated with Admixer
      Privacy Policy