How To Make Money With Online Auctions – To get more participants in online auctions and push up the price of winning bids, two things: how long the auction is active and the day of the week it is closed, found new research from Maryland Smith’s Wedad Elmaghraby.
Elmaghraby’s research, forthcoming in Management Science, focuses on business-to-business (B2B) auction platforms, which retailers use to sell unsold inventory or return it to discount stores and wholesale liquidators.
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Elmaghraby and his colleagues studied how speeding up or speeding up auctions affects the number of buyers who bid in online auctions. They found that setting the listing (supply) policy – in particular, the day when the auction closes / ends and how long it remains open – affects whether potential buyers make an offer or wait and can increase the seller’s profit by several percentage points.
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“On the one hand,” the researchers wrote, “increasing supply with more auctions on a given day can incentivize more participation in auctions. But auctions that end on the same day undermine each other and lower prices that day.”
The researchers used data from a leading online platform that manages auctions to eliminate excess inventory or returns for more than 30 big-box retailers, including Costco, Walmart, Sears and Home Depot. The auction is like an eBay auction, lasting from one to four days, with packages of similar products – electronics, household appliances, furniture or clothing – up for grabs. To study, the researchers honed in on iPhone auctions.
They collect auction data to design optimal listing policies. They found that concentrating the auction deadline to certain days of the week led to a 7.3 percent increase in platform revenue. Researchers also say that auction platforms can increase their profits if they implement a recommendation system to selectively inform sellers and bidders about the number of auctions currently open on the platform. He said the right system would increase the level of competition among bidders on days when incoming supply is higher than average, once again helping to match supply with demand.
Business is moving fast in the 21st century. Stay one step ahead with bite-sized business insights from Smith School’s world-class faculty. If you’ve ever bought anything on eBay, you’re probably familiar with the concept of second-price auctions, the winning bid process. the price offered by the second highest bidder, rather than his own.
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The double price auction model is widely applied in the programmatic world. For years, this has allowed advertisers to bid high prices to secure impressions, but end up paying lower prices. However, due to recent trends in the AdTech industry, we are witnessing a steady transition to a model similar to first-price auctions. Before we trace the roots of this change, let’s discuss the difference between the first and second price auctions.
In real-time bidding (RTB), a double-price auction gives the winning bidder the opportunity to pay less than the original bid submitted. Instead of having to pay the full price, the winning bidder pays the price offered by the second highest bidder plus $0.01. The final price of the impression is known as
The reduction gives an advantage to the bidders and the opportunity to save overestimation of the impression value. Due to various floor optimizations and shenanigans, however, the
Bidder B wins and gets the impression for $4.50. First price auctions require the winner to pay the full price offered in the auction.
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In a first price auction model (also known as an English auction) bidders pay exactly what they bid. While this auction mechanism gives publishers the highest eCPM for their inventory, it can lead to unreasonable prices, as buyers are forced to “guess” how much the competition is bidding. This, in turn, may lead to overpaying, and lower demand for the publisher’s inventory.
A hard price tier is the minimum price a publisher will receive for impressions exchanged for ads. Bids below this minimum price are simply discarded. This means that the seller will not take the offer below the hard price floor.
Since bidders may not know what the hard floor is, the concept of a soft price floor is implemented to “catch” bids that fall just below the hard floor and otherwise be rejected without a return to the publisher.
Lack of transparency is usually cited as one of the main problems of programmatic RTB. Due to certain inconsistencies in the way various exchanges organize auctions, there is a popular trend towards first-price auctions as an alternative, in bids to make the field even playing for all.
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While the second-price auction mechanic appears to protect advertisers, it can also frustrate publishers, who have devised various ways to artificially inflate original CPMs. This is achieved by introducing soft floors, hard floors, or various other fees and manipulations that increase the final price beyond what the advertiser is willing to pay. However, this practice is basically the counter idea of the second-price auction and convert it into a
Header bidding (aka pre-bidding, initial bidding, and holistic yield management) offers SSPs the opportunity to create a second price auction before running the final auction on the publisher’s ad server. An SSP that conducts a fair second-price auction in the header will retain less competitive bids for the final auction, and will have a very low win rate, resulting in a transition to a first-price auction.
The first price auction gives buyers a better chance to win an impression when the header bidding is done, because instead of the winning bid from the second price auction being pushed to the ad server, the correct bid is the one that competes in the final auction. .
Exchanges that offer to buy programmatic ads, intentionally or not, obscure the bidding process, making it unclear to buyers what kind of auctions they are actually dealing with. While the first price auction appears to be a more transparent option (no floor mechanism or hidden fees), it offers some real benefits to advertisers. The right offer in this model (i.e. offering the real value of the impression) can be, not only more challenging, but also more expensive.
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The first price auction allows buyers and sellers to see the actual cost of the impression and the cost taken by the SSP / ad exchange will at least be known. The winning price is exactly what the advertiser agreed to, but there is a risk of overpaying for impressions.
The working of the first price auction can only be understood if the buyer knows the fair market value of the impressions offered, and knows the mechanism of the hard and soft-floor mechanism.
Advertisers don’t like the feeling of being manipulated into bidding more than they should, so some use algorithms to predict price levels and bids. To do this, they must invest in technology that will adapt specifically to the rules of each auction.
It is not surprising that publishers try to recover some of the revenue lost due to the reduction (the difference between the bid price and the clearing price) in the second price auction. To do this, SSPs and ad exchanges are starting to implement a combination of soft and hard price floors, essentially turning the auction into a hybrid between the first and second auctions.
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The hard price floor automatically eliminates all bids at $4.25. Bids between the hard and soft floor take part in the first-price auction, unless there is a bid above the soft price floor, which will take part in the second-price auction instead. This solution seems to give the best of both worlds; High-value bidders can avoid overpaying, they are charged for every second price.
Conversely, if there are no high-value bidders (no bids above $4.75), low-value bidders (with bids below the soft price level) are charged for each first price, thus maximizing the publisher’s results.
Exchanges implement floor methods to combat low bid density. Header bidding further raises the floor, and exchanges are even considering abandoning the auction type altogether. Whether the first price auction model will, in time, be as game as the second price model remains to be seen.
In a LinkedIn Pulse post, Simon Harris, Head of Programmatic Activation at Dentsu Aegis Network, aptly pointed out that it was a great coincidence that the transition from first to second price auctions happened exactly when there was pressure on SSP. / ad exchange to reduce the take rate (costs applied to the reduction, which is often unknown to the publisher).
Pros And Cons Of Online Auction Vs On Site Auction
This suggests that the shift in programmatic media buying may be occurring clearly to the advantage of publishers.
For advertisers, on the other hand, it is more important to understand the mechanics of RTB and be able to bid.
Whether you want to create a custom header bidding package or want to add header bidding capabilities to your existing AdTech platform, our full-service development team can help you design, engineer, and build the right solution
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