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Second Price Auction Definition
In digital advertising, a second price auction is a bidding model where the highest bidder wins the ad placement but pays the amount of the second-highest bid plus one cent (or the smallest allowed increment). This system encourages honest bidding and cost efficiency.
How Second Price Auction Works
- Advertisers submit bids for ad inventory.
- The highest bidder wins the impression.
- The winner pays the second-highest bid price, not their own.
- Used widely in Google Ads and programmatic platforms.
Example of Second Price Auction
Advertiser A bids $2.00, and Advertiser B bids $1.50. Advertiser A wins the impression but pays $1.51.
Why Second Price Auction Matters in Advertising
- Promotes fair pricing and bidding strategies
- Reduces overpayment for ad placements
- Encourages honest, value-based bidding behavior
- Common in programmatic and search advertising platforms
