You're entering a second-price auction for sports inventory. You're the highest bidder and bid $5.00. The second-highest bidder bids $4.00. As the auction winner, what will you pay for these impressions?

Analysis of Correct Answer(s)

In a second-price auction, the winner does not pay their full bid amount. Instead, they pay a minimal amount more than the second-highest bid. This price is often referred to as the clearing price. The standard increment in programmatic advertising is one cent ($0.01).

• The second-highest bid in this scenario is $4.00.
• To win the auction, your clearing price will be the second-highest bid plus the minimum increment: $4.00 + $0.01 = $4.01.

Even though your maximum bid was $5.00, you only pay what is necessary to beat the competition.

Analysis of Incorrect Options

• $4.00: This is the value of the second-highest bid itself. The winner must pay an increment above this price.
• $5.00: This is your bid. You would pay this amount in a first-price auction, where the winner pays what they bid. The question specifies a second-price auction.
• $5.01: This value is incorrectly calculated based on the winning bid rather than the second-highest bid.