Second-price auction is one of the bidding models in programmatic advertising, which implies the auction winner pays the minimum higher price than the amount of the second-highest bid.
What is a Second-price Auction?
Contrarily to the so-to-speak, “classic”, i.e. first-price auction, its second-price variation basically implies that the winner doesn’t actually have to pay the entire amount of their bid. Instead, they’re required to only pay $0.01 more, than the second-largest bid among the auction participants.
Benefits vs. Downsides
One of the obvious advantages of second-price auctions is that these encourage the comparatively transparent and fair inventory bidding with fewer overpricing risks.
On the other hand, their major drawback lies in bidders’ necessity to continuously optimize their bidding strategy by balancing the inventory price, while keeping their positions in the auction competitive enough to secure ad impressions. This may require investing extra time and operational resources from ad ops teams in order to bring satisfactory ROI outcomes.
Common Bidding Strategies
Quite predictably, most of the commonly-applied bidding strategies in second-price auctions imply the thorough analysis of the past bidding history, competitors’ bidding tactics, inventory segmentation and continuous experimentation, just to name a few.
And while there’s no common silver bullet, which would potentially win it all for an advertiser, here are some of the popular bidding tactics to consider:
- Bid shading – lowering the winning bid price to a slightly higher value than the estimated second price in the auction in order to minimize costs;
- Dynamic bidding – adaptation of bids almost in real time, based on the ongoing performance;
- Bid adjustment – experimentation with & adjustment of bids along the way based on a set of parameters, including audience geography, ad placement specs, campaign goals, potential ROI, etc. in order to select the most cost-effective winning bid for the particular inventory;
- Budget allocation – bidding across multiple auctions, then shifting a larger share of the budget to the most efficient auction choices for maximum yield.