A second-price auction is an auction-type model in programmatic advertising. Despite the possible illogic, the second-price auction is the most common way of bidding because it is the most efficient and is based on the mathematical model of the Vickrey auction.
In a second-price auction, multiple advertisers compete to win the opportunity to display their ad on a publisher’s website or app. Each advertiser submits a bid indicating the maximum amount they will pay for the impression. The advertiser with the highest bid is declared the auction winner, but they do not pay the amount they bid. Instead, they pay the price set by the second-highest bidder.
For example, let’s say three advertisers participate in a second-price auction. Advertiser A bids $1.50, Advertiser B bids $2.00, and Advertiser C bids $1.75. In this case, Advertiser B would win the auction, but they would only pay $1.75, the price set by the second-highest bidder (Advertiser C).
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