Bidders' Responses to Auction Format Change in Internet Display Advertising Auctions

BSTRACTWe study actual bidding behavior when a new auction format gets introduced into the marketplace. More specifically, we investigate this question using a novel dataset on internet display advertising auctions that exploits a staggered adoption by different publishers (sellers) of first-price auctions (FPAs), instead of the traditional second-price auctions (SPAs). Event study regression estimates indicate that, immediately after the auction format change, the revenue per sold impression (price) jumped considerably for the treated publishers relative to the control publishers, ranging from 35% to 75% of the pre-treatment price level of the treatment group. Further, we observe that in later auction format changes the increase in the price levels under FPAs relative to price levels under SPAs dissipates over time, reminiscent of the celebrated revenue equivalence theorem. A possible interpretation of these facts is initially insufficient bid shading after the format change rather than an immediate shift to a new Bayesian Nash equilibrium. The gradual decrease in prices can be interpreted as the result of bidders' learning to shade their bids. We also present suggestive evidence that bidders' sophistication may have impacted their response to the auction format change. Our work constitutes one of the first field studies on bidders' responses to auction format changes, providing an important complement to theoretical model predictions. As such, it provides valuable information to auction designers when considering the implementation of different formats. The full version of the paper is available at: https://arxiv.org/abs/2110.13814