UCL School of Management is delighted to welcome, Robert Zeithammer, UCLA Anderson, to host a research seminar discussing: ‘Adjustment of Bidding Strategies After a Switch to First-Price Rules’.
We document the response of bidders to a switch in auction pricing rules by a platform for selling online advertising impressions. The platform switched from a second-price auction to a first-price auction, so the same bidder bidding to show the same creative in the same location on the same webpage should bid less after the switch than before the switch. We show that bids indeed decline after the switch, but they do not decline enough given the actual competition each bidder is facing after the switch. To measure whether bids declined enough, we propose a nonparametric estimator of a lower bound on the bidder’s valuation underlying each post-switch bid. Bids did not decline enough in that the estimated bounds substantially exceed the pre-switch valuations of showing the same creative. We find evidence of an incomplete and slow downward adjustment in bid magnitude over the period of months, whereby bids remain insufficiently shaded for about half the creatives we analyze even three months after the switch. Implications for analysis of bidding in first-price auctions and analysis of short-run A/B tests of different pricing rules are discussed.