Auction Types
Understand first-price and second-price auctions, and how they affect your bidding strategy.
The two auction types
| Type | Winner pays | Industry status |
|---|---|---|
| Second-price | Second-highest bid + $0.01 | Legacy (pre-2019) |
| First-price | Their actual bid | Current standard |
Second-price auctions (historical)
In a second-price auction, the winner pays just above the second-highest bid:
Example — second-price auction
| Bidder | Bid | Role |
|---|---|---|
| Partner A | $3.00 | Winner |
| Partner B | $2.50 | Sets price (second-highest) |
| Partner C | $2.00 | — |
Winner pays: $2.51 — second price + $0.01.
Why it existed: Encouraged truthful bidding. Bidders could bid their true value without worrying about overpaying.
Why it's gone: Stacking second-price auctions (header bidding, then the ad server) made the clearing price opaque and easy to game — an intermediary running its own second-price auction could shade or pocket the difference, and buyers couldn't tell what they were really competing against. First-price was adopted for transparency: everyone pays what they bid, in one auction.
First-price auctions (current standard)
In a first-price auction, the winner pays exactly what they bid:
Example — first-price auction
| Bidder | Bid | Role |
|---|---|---|
| Partner A | $3.00 | Winner |
| Partner B | $2.50 | — |
| Partner C | $2.00 | — |
Winner pays: $3.00 — their actual bid.
The shift: Starting in 2019, the industry moved to first-price auctions for transparency and simplicity.
How first-price affects you
Pros:
- Simpler to understand
- Often higher revenue (winners pay their full bid)
- More transparent pricing
Cons:
- Buyers bid more strategically (via bid shading — see below)
- You need to set floors carefully
Bid shading explained
| Scenario | Buyer's value | Buyer's bid | Buyer pays | Note |
|---|---|---|---|---|
| Without bid shading | $5.00 | $5.00 | $5.00 | Potentially overpaying |
| With bid shading | $5.00 | $3.20 | $3.20 | Algorithm estimates winning price around $3.00 |
Impact on publishers: Buyers bid lower than they would in second-price. This is why floors matter more now.
Why floors matter in first-price
In a second-price world, floors were less critical. In first-price:
| Scenario | Bidder A | Bidder B | You earn |
|---|---|---|---|
| No floor | $0.50 (wins) | $0.40 | $0.50 |
| $1.00 floor | $1.20 (wins) | $1.10 | $1.20 |
Bidders must clear the floor — shading algorithms respond by raising their bids, capturing value that would otherwise be left on the table.
The row above assumes both bidders had more to give. Floors aren't free money: set the floor above what a bidder is willing to pay and it drops out of the auction entirely, so you trade fill rate for price. The right floor is the one that lifts price without pushing fill below your target — see Floors.
Unified auction in GAM
Google Ad Manager brings all your demand into one decision:
- Prebid bids — From your header bidding partners
- AdX demand — Google's exchange
- Direct deals — Your sold campaigns
It resolves in two layers, not one price race. First, line-item priority tiers decide — a reserved / sponsorship or direct deal can outrank a higher open-market bid. Only within the open-market tier do Prebid and AdX then compete on first price.
| Source | Bid | Result |
|---|---|---|
| Prebid winner | $2.50 | Highest price — but open-market priority |
| AdX (Google's exchange) | $2.30 | — |
| Direct deal (sponsorship line item) | $2.00 CPM | Wins — booked at a higher priority tier |
Final winner: the direct deal, even though the open-market bid was higher — GAM honors line-item priority before price.
Practical implications
Setting timeouts
First-price means every bid matters. Don't set timeouts so low that you miss high-value bids.
Floor strategy
More important than ever. Start with conservative floors and adjust based on fill rate data.
Partner diversity
Different partners use different shading algorithms, so more partners means more varied bidding, which improves price discovery.
Monitoring
Bidding just above the floor is usually normal bid shading — an algorithm bidding the least it needs to win — not gaming. What's worth watching is bids that collapse to the floor across the board, which can mean a partner is anchoring to your floor rather than valuing the impression.
Common questions
Do I need to do anything different for first-price?
Not really. The Anima platform handles the mechanics. Focus on:
- Setting appropriate floor prices
- Having enough demand partners
- Monitoring performance
Why don't buyers just bid $0.01?
Competition. If they bid too low, they lose the auction to someone willing to pay more. Bid shading finds the balance between winning and not overpaying.
Is first-price better for publishers?
Generally yes, when combined with smart floor strategies. The transparency also helps you understand your true inventory value.
Related concepts
- Floors → — How to set minimum bids
- Header Bidding 101 → — How the auction works
- Demand Partners → — The bidders in your auction