Economic Analysis of Business Practice
Auctions are a great way for sellers to easily identify the highest-valued buyer among competitors. Traditional English auctions, where the highest bidder wins by outbidding the last-highest bidder (Froeb, McCann, Shor, & Ward, 2016, p. 232), are popular online with websites such as Ebay. As discussed in the video, at Google, they use second-price, or Vickrey, auctioning to sell advertising space. We’ve learned that second-price auctioning is a type d sealed auction where the highest bidder is awarded the win, but only pays for the second-highest bidder’s bid price (Froeb, McCann, Shor, & Ward, 2016, p. 223). This is a smart move by Google because this sort of auctioning has been proven to encourage aggressive bidding. This sort of bidding makes sense for Google because it can be easily automated and implemented via the internet because bidder’s do not need to be present or bidding at the same time to win (Froeb, McCann, Shor, & Ward, 2016, p. 238). What I didn’t realize about Google’s Ad space competition is that there’s more to the formula than just the bids themselves. By having metrics for quality ad content and relevancy, I’m wondering if this actually acts to protect Google itself, and that’s very interesting to me. If having the highest bid was simply the way to get Google’s space, bidders could place poor quality irrelevant ads on Google. This in turn could potentially tarnish Google’s own reputation in having poor quality ads present. ReferencesFroeb, L. M., McCann, B. T., Shor, M. & Ward, M. R. (2016). Managerial economics: A problem solving approach. Boston, MA: Cengage Learning.