As an intern on the Data Science team at Xandr, I have had quite the learning experience this Summer. My team works on products for publishers to enable them in online advertisement auctions.
The central idea to my project is reducing bidder shading. In first price auctions, the bidder with the highest bid wins the auction and pays their own bid. When bidders start winning in this style of auction, they reduce (shade) their bids such that they continue winning auctions but do not have to pay their full valuation.
The only way that a price floor can have an effect in a first-price auction is by being higher than otherwise winning bids, cancelling the corresponding auction. Implementing a floor price could reduce “bid shading” by cancelling enough auctions to force bidders to change their behavior if they want to win. Instead of reducing bidder shading, the floor could cause the bidders to move to other buying platforms or simply have no reaction at all, resulting in the simple cancellation of some auctions and lost revenue. …