1st Price vs 2nd Price Auction | In a realtime OpenRTB environment, an auction takes place to define the price for an impression. We know two types of price mechanisms:
1st Price Auction | 2nd Price Auction
At Atomx, auctions work on the 2nd Price Model. What is the difference between 1st Price and 2nd Price Auction?
For 1st price auctions, the winners are the bidders offering the highest price, winning based on their highest price offered. Example: advertiser A bids $0.25 maximum, advertiser B bids $0.35. Since the highest bid not only determines the winner but also the price to pay, this particular auction will clear at $0.35. It gives publishers the highest CPM possible = Advantage Publisher.
In a 2nd price auction, the winner is obviously offering the highest price, but in this case he only pays fractionally more than the second-highest price offered – comparable to ebay. An Atomx auction will be clearing $0.01 above the second highest bid. It gives publishers the lowest CPM possible. Advantage Advertiser – but only at first sight.
From an advertiser’s point of view in an Open RTB environment, a 2nd price auction lets buyers bid more aggressively. The 2nd price auction gives them enough comfort to bid with confidence. By only having to pay 1 cent more than the second highest bidder, it helps maintaining pricing efficiency.
What about the publisher? To avoid huge gaps between a maximum DCPM and the second bid, Atomx publishers often set floor prices. A floor price is the minimum eCPM that a publisher is willing to accept. Only bids above that floor price will have a chance to buy. The minimum floor will act like a second highest bidder, making sure, the winner bids above this floor price. Advertisers usually do not know about such floor price.
Conclusion: Using the 2nd price auction, is a great way for Atomx advertisers to optimize their campaigns and maximize the ROIs. Still publishers have a powerful tool in hand to keep up their sell side earnings via the floor price option.