Second-Price Auction - Definition
Digital advertising is the land of acronyms and technical terms. Our glossary can help you make sense of it all with definitions of the most common terminology.
What is Second-Price Auction?
A second-price auction, also known as a Vickrey auction, is a bidding mechanism where the highest bidder wins the item or service but only pays the price of the second-highest bid plus a penny. This auction model encourages bidders to bid their true value for an item, as they know they will only have to pay the second-highest price, which is always equal to or lower than their own bid. The second-price auction aims to eliminate the fear of overpaying, making the process more transparent and promoting honest bidding behavior. However, this type of auction has become less common in recent years, as it is being phased out in favor of first-price auctions, where the highest bidder simply pays their bid amount.