What is the Walmart Connect Second-Price Auction bidding system?

To explain what a second-price auction bidding system is, let’s first take a look at what a first-price auction bidding system looks like.

First-price auctions, commonly referred to as blind auctions, operate by having advertisers submit their highest bid or the maximum amount they are willing to pay for an ad impression. During this process, advertisers lack information about the bids of other participants who are simultaneously vying for the same impression.

If an advertiser emerges victorious in a first-price auction, they are billed based on their highest bid, irrespective of the value of the second-highest bid.

Unlike a second-price auction, where the highest bidder pays the price of the second-highest bid, a first-price auction enforces the principle that the winner pays their own bid amount. It encourages bidders to carefully consider their bid strategy and submit bids that reflect the true value they place on the ad impression.

In a second-price auction, participants compete to win an item or opportunity by submitting their bids privately. The auction format is called “second-price” because the highest bidder is awarded the item or opportunity, but they only have to pay the amount of the second-highest bid.

Advertisers bid for ad impressions, and the highest bidder wins the opportunity to display their ad. However, the winning advertiser is charged the amount of the second-highest bid, not their own bid amount.

This auction format encourages bidders to bid their true valuation for the ad impression, as it incentivizes strategic bidding. Bidders aim to balance the value they place on the impression with the desire to pay as little as possible. The second-price auction reduces the risk of overpaying while still ensuring that the highest bidder wins the auction.