First price auction and second price auction - What's the key difference?

All programmatic and RTB exchanges in digital advertising run using one or the other of these auction types.The main difference between these two types of auctioning model is determining the final price paid by the buyer. We’ve added this guide to explain the difference and the impact that each has on publisher earnings.

First Price Auction

First price auction is the most common auction model used by various ad tech platforms. In this auction the advertiser would have to pay the exact price that was quoted in the bid response. If we used to pay the highest and exact bid the publishers will earn more revenue with their inventories.

Quick case :
 X bids $0.15
Y bids $1
Z bids $2

First Price Auction

(The highest bidder will be the winner of this auction and he would be charged based on the price he quoted in bid response.)

Second Price Auction

In this auction model the advertiser would have to pay $0.01 higher than the second highest bid that was quoted in the bid response. If we used to pay the second highest bid the advertisers will pay less than he quoted to buying inventories. Google ads was previously based on the second price auction model before they rolled out their auction model.

Quick case :
 X bids $0.15
Y bids $1
Z bids $2

Second price auction

(The highest bidder will be the winner of this auction but he would be charged based on the second highest price.
Here the winner will be Y and he would pay $1.01 instead of hiss own bid $2)

Bid shading

As you may asks why the ad tech platforms is supporting only one of them. Hopefully there is a concept called 'bid shading' come into effect to provide benefits for advertisers and publishers to avoid overpaying for the inventories.

Quick case :

 X bids $0.15

Y bids $1
Z bids $2
The winning bid will be $1.5