Glossary of Mobile Advertising Terms
1st price auction is a buying model where bidders pay exactly what they bid. This model gives the highest eCPM to a publisher for their inventory, but it can often lead to inflated prices because it forces buyers to guess their competitor's bid. In the guessing game, the inventory is often overpaid and in return, this causes lower demand for the publisher’s inventory.
For example, let’s say you have three bidders. Bidder A bids 2$, bidder B 4$, and bidder C bids 3$. Naturally, bidder B is the highest bidder and he wins the auction by paying the full price they offered.
This looks “normal” but there is also a 2nd price auction model where the bidder B would only pay the second highest bid with some extra or in this case 3.01$ (check the definition of the 2nd price auction for more info).
Both models have their pros and cons, and one is not necessarily better than the other. One of the “problems” with the 1st price auction and the 4$ bid, is that the inventory may only be worth 2.5$, which means the bidder B overpaid the item by 60%, which could also lead to inflation.