What is a first-price vs second-price auction in advertising?
In a first-price auction, the winner pays exactly what they bid. In a second-price auction, the winner pays just above the second-highest bid. Programmatic advertising largely moved from second-price to first-price auctions around 2017 to 2019, with Google Ad Manager switching in 2019, because header bidding made second-price rules confusing and easy to manipulate.
Second-price auctions encourage bidders to bid their true value, since they will only pay the runner-up's price. But when publishers ran several auctions in sequence through header bidding, "second price" became murky, and some exchanges quietly altered clearing prices. First-price auctions are simpler and more transparent for sellers.
For buyers, first price creates a risk of overpaying, so DSPs use bid shading to estimate the lowest price likely to win. Publishers use floor prices to protect value. Understanding auction dynamics helps explain why prices move when bidders are added or removed.