Auctions for internet ads take place entirely by computer, due to the speed involved. The price the winner pays is interesting – they don’t pay what they bid, they pay what the 2nd highest bidder bid (plus a small amount). The idea is that really wildly high bids don’t get penalized (unless there are two wildly high bidders).
from http://www.research-live.com/4010883.article based on Scott Patterson’s new book Dark Pools.
Here’s how real-time bidding works: A web user visits a web page. As the page loads up, a call goes out to all interested parties saying, “Here’s an ad impression”. Advertisers will be told what sort of impression is available, and what the profile of the user is, based on demographic, intent, interest or behavioural data. Then the bidding starts.
At Quantcast, Kotecha says: “We see 100,000 bids every second of every day.” Advertisers submit what they’re willing to pay and the highest bid wins. Except the winner only pays the second-highest price, plus a little bit on top. This is supposed to encourage bidders to be more aggressive, says Mathieu Gbetro, the group director of product and implementation for mobile network Orange. “They can bid very aggressively without taking too much risk of paying the price they’re bidding to.”
P.S. When I first posted this, the ad spots to the right and below were both related to UMSL; the university must have been attracted by my somewhat negative post about UMSL a few days ago.