How do Auctions work?

How do the auctions work?

Topsort operates on a general second price auction principle. (In fact one of our cofounders Michael Ostrovsky wrote a paper about second-priced auctions that was later recognized by the Game Theory Society as the most influential paper of the decade on this topic).

Vendors and brands can bid to have their product on your marketplace platform become “sponsored” or appear as a banner ad. These promotions will gain much higher impression counts through visibility and have the opportunity to increase sales revenue. Those vendors who “lose” the auction by bidding a lower value, will remain in their given, less optimal listing location. Our auction-based native ads are dynamic and reset with every page load. In this way, a vendor can track the number of auctions that they “win” through the number of impressions. This means that depending on the page traffic, there could be thousands of auctions a second or just a few times a day.

The more each vendor bids, the more likely they are to win the auctions for premium locations. Their bid should take into account the benefits of increased visibility and the number of clicks leading to sales, with the cost of paying for those clicks.

Whether a vendor outbids their competition by a lot or by little, our system will automatically calculate their payment to be the smallest amount needed to beat the competition.

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At a high level, the winner of the auction will be calculated based on this calculation: Total Score = Quality Score x CPC bid (although in some cases we will apply additional adjustments and guardrails). In this way, it is not the vendors who simply pay the most who will win the auction. The product listings must also be of sufficiently good quality with regards to an estimated predicted click-through rate. For some marketplaces, we can also incorporate the marketplace’s own relevance metrics in the Quality Score calculation.

All of this bidding takes place on the vendor side of the platform and is very simple to execute.


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