4 ms·
>There's an elaborate economic rationale for second-price auctions, including that they avoid "winner's remorse." Leave it to the late-stage "improvers" to say,
by marcinzm 3y ago
>There's an elaborate economic rationale for second-price auctions, including that they avoid "winner's remorse." Leave it to the late-stage "improvers" to say, "hey, we can capture some of that gap between first and second place!"
The reason Google uses second price auctions is because first price auctions incentive constant bid changes. The stability increases the money Google makes.
edit: For more context, and ignoring the whole generalized second price auction parts, the revenue from first and second price auctions is the same. In theory with optimal bidding and the usual assumptions of auction theory papers. The difference is that in a second price auction your optimal bid is independent of the other bidders. In a first price auction your optimal bid is dependent on the expected distribution of other bidders. In theory with all the usual auction theory assumptions. In reality with online auctions this meant a lot of churn in bids and a preference for bidding more conservatively. Which isn't good for advertisers or the revenue of the company running the auction. Second price auctions mostly solve this especially if you adjust the minimum auction price (ie: reserve price) per auction.
edit2: A great way to get more money is to have advertisers think they're bidding in a second price auction while actually running something closer to a first price auction. Which is essentially what the article talks about.
- AlbertCory 3y agoThere's a lot of literature on auction theory. I don't get the sense you've read any of it, or talked to anyone who has. Ad auctions happen in microseconds. There's no possibility of changing your bid while it's underway.
- daveFNbuck 3y agoThey happen more than once. You'd change your bid for the aggregate effect of paying for many wins, not for an individual auction.
- AlbertCory 3y agoThey happen millions of time per day, for any single ad (in any case, it wasn't clear what he meant by "bid changes").
- marcinzm 3y agoI’ve been in the field for 20 years and I know the difference between what companies do and what theoretical papers say they do. As the other person said, bids repeat across multiple auctions on the same keyword and even in a generalized second price auction optimally your bids are adjusted based on the expected dynamics of each auction. Based on past information and so on. In a first price auction you’d keep lowering your average bid until it’s on average right above the next bid. The next bidder would then increase their bids. You’d then do so as well. Etc. Etc.
- AlbertCory 3y ago[flagged]
- marcinzm 3y agoYou’re moving the goal post from not knowing auctions to not knowing Google. Will the next question be if I made the decision at Google for this approach when they were competing with Overture?
- AlbertCory 3y ago[flagged]
- deleted 3y ago[deleted]