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Glossary of Mobile Advertising Terms

2nd Price Auction

What is 2nd Price Auction?

2nd price auction is a buying model where the winning bidder pays the second highest bid with some added extra. In the 2nd price auction, you are encouraged to bid the highest you are willing to pay because you’ll often end up paying less than that.

This model helps with the overestimation of the publisher’s inventory since the winning bidder won’t pay the actual price offered.

How does 2nd Price Auction work?

For example, there are three bidders contesting for the inventory. Bidder A bids 2$, bidder B 4$, and bidder C bids 3$. Since the bidder B has the highest bid, he wins the auction but he will not pay the 4$ he offered. Instead, he pays the amount of the second highest bid plus 0.01$, or in this case 3.01$.

Similar to the 1st price auction, this also has its advantages and disadvantages. One of the disadvantages is that there isn’t really that much information on the winning bid (also called clearing price) if your bid didn’t win. In other words, there is a lack of transparency, which could lead to price manipulation. There is also the possibility of someone overpricing the item way too much, knowing that if he wins, he won’t pay nearly as much (although this could backfire, it is a possibility).