Second-Price Auction

The Second-Price Auction, also referred to as a Vickrey Auction, is an auction model where the highest bidder secures the ad space but pays the amount of the second-highest bid (occasionally plus $0.01).

This auction structure is commonly utilized in programmatic advertising, enabling advertisers to submit their true maximum bids for inventory. It promotes transparent bidding, as advertisers understand they won’t pay more than the next highest bid. However, it’s important to note that most digital ad sellers have transitioned to First-Price Auctions, which maximize revenue and reduce the potential for manipulation by digital ad buyers.

For example:

If Advertiser A bids $2.00 CPM, Advertiser B offers $3.00 CPM, and Advertiser C bids $4.00 CPM, Advertiser C wins the auction but pays $3.00 CPM (sometimes plus $0.01), which is Advertiser B’s bid.