WTF Is A Second Price Auction?
In the programmatic space you may be hearing the term Second Price Auction (SPA) come up more often these days. It’s a concept that started in the header bidding sector of digital media, and is now trickling into regular programmatic buying. SPAs are run as a normal open exchange auction. But instead of the highest bidder paying their bid price for an impression, they get to pay the second highest bid price plus one penny. This eliminates the inefficiency of a price bulge where one bidder could be offering a way higher price than the rest of the field.
Second price auctions are appealing to brands for an obvious reason – the help reduce the overall price of media impressions. According to a recent test by Hearts & Science, SPA buying was 59% more efficient than in an equivalent first price auction. Obviously any bidder who knows what they’re doing will test bid prices in a first price auction, so if they’re really 59% higher than the next bid they’ll quickly learn to bring their offer price down. Regardless, SPAs seem like an easy (and automated) way to take the guesswork out of pricing to win an impression bid.