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First Price Auction Definition
A first price auction is a bidding model where the advertiser with the highest bid wins the ad impression and pays the full bid amount. Unlike second price auctions, this system offers more transparency but can lead to higher, more competitive pricing.
How First Price Auction Works
- Advertisers submit bids for ad impressions.
- The highest bidder wins and pays their actual bid price.
- Used in some programmatic, display, and video ad environments.
- Bidders must carefully manage bids to avoid overpaying.
Example of First Price Auction
A DSP participates in a first price auction for a premium display ad spot, bidding $5 CPM and paying exactly $5 upon winning.
Why First Price Auction Matters in Advertising
- Encourages transparent, direct pricing in ad auctions
- Requires smart bidding strategies to maintain profitability
- Influences media buying costs in programmatic advertising
- Shifts the competitive landscape for advertisers and publishers
