A second-price auction is a type of auction in which the winning bidder pays the second-highest bid, rather than the highest bid, as the price for the item being auctioned. Second-price auctions are often used in the context of display advertising, as they can provide a way for advertisers to bid on ad inventory in a transparent and efficient manner, and can help to optimize the allocation of ad inventory to the highest-value bidders. Second-price auctions are typically conducted in real-time, using automated bidding systems, and can be an effective way for advertisers to maximize their return on investment, and to drive brand awareness and engagement.

Suppose that an online publisher has some ad inventory available on their website, and they want to auction it off to advertisers. The publisher can use a second-price auction to do this, by setting a starting bid price and inviting advertisers to submit bids. The publisher can use an automated bidding system to manage the auction in real-time, and to determine the winning bidder.

For example, suppose that the starting bid price for the ad inventory is $1.00, and that three advertisers submit bids:

• Advertiser A bids $1.50

• Advertiser B bids $1.25

• Advertiser C bids $1.00

In this case, Advertiser A has submitted the highest bid, and would typically win the auction and pay the bid price of $1.50. However, in a second-price auction, the winning bidder pays the second-highest bid, which in this case would be $1.25 (submitted by Advertiser B). Therefore, Advertiser A would win the auction, but would only have to pay $1.25 for the ad inventory. This can help to ensure that the ad inventory is allocated to the highest-value bidder, while also allowing advertisers to bid competitively and transparently.