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Many ad servers running GSP auctions tend to charge a $0.01 increment on the second price. I was wondering if there was any theoretical basis for this, or is it just a way for ad servers to make a little extra money at the expense of advertisers?

Although it probably wouldn't have much effect on incentives in practice, it seems that doing this breaks incentive compatibility in a true Vickrey auction, and breaks the equilibrium properties of a GSP auction.

I have heard the case made that this is a tie breaking rule, in which case what do you do when two bidders bid the exact same amount? You can't charge $0.01 extra because it would exceed their maximum bid. In which case this doesn't address the breaking of incentive compatibility.

Thanks

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  • $\begingroup$ Forgive my ignorance of these types of auctions in the ad world, but what exactly do you mean "charges a .01 increment?" Do you mean it adds one cent to the second price, and charges the winner that sum? Separately, I suppose it's worth pointing out that GSP auctions aren't actually incentive compatible, so there's no direct fear of losing that property. $\endgroup$ – AndrewC Jun 19 '18 at 21:12
  • $\begingroup$ Yes, that's what I mean. If there are two bidders A and B, and A bids \$8 while B bids \$5, bidder A will win and pay \$5.01. And GSP auctions may not be incentive compatible, but their Nash equilibrium properties would be broken as far as I can tell. $\endgroup$ – rojmor Jun 20 '18 at 9:19

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