As soon as an impression is offered for purchase through Real Time Bidding (RTB), hundreds of bids are submitted in a matter of milliseconds, in a process where the highest eligible bid wins the auction and is awarded the impression.
While each exchange platform may standardize on a different auction type, platforms designed to operate a private marketplace may offer the option to select an auction format depending on the type of deal negotiated with each buyer.
Let’s take a look at the most common auction types (note: all fall into the “sealed-bid” category, meaning bidders enter the auction without knowing how many bids they compete with or their level):
First price auction … whereby the highest bidder wins and pays the amount it bid (similar to a blind-silent auction).
Second price auction (Vickrey auction) …whereby the highest bidder wins, but pays the second-highest bid + the minimum bid value, e.g. $0.01 (similar to eBay).
Fixed CPM/guaranteed auction … whereby the bidder agrees to pay a pre-determined price or guaranteed budget for 100% of a specific type of impression, trumping all other bids (comparable to eBay’s “Buy It Now” option).
For publishers, understanding which format is best suited to their property or a specific deal is an important consideration, as each one will have a different impact on the final price paid for their impressions.