Bidder Bid Cost
Sue 50
Paul 25
Taylor 10

Sue's Bid

Paul's Bid

Taylor's Bid

Reserve Price

Reserve Price: 10

Generalized second-price auctions (GSP auctions) are used extensively in online advertising systems and they’re actually pretty interesting to think about. I created this little interactive tool to help people get a better intuition for how bidding and pricing work in GSP auctions.

Each bidder’s cost (the amount they actually pay for a click) is determined by the highest bid that is less than or equal to their own (i.e. the second price).

The tool shows three people bidding in an ad auction: Sue, Paul, and Taylor. Let’s assume they are bidding for their ad to be displayed in the first, second and third most prominent advertising slots on a webpage. You can play around with their bids to see how it affects their cost and the cost of other bidders.

Note: the reserve price is the lowest price that the webpage owner is willing to sell a click for. The lowest bidder’s cost is determined by the reserve price. If a bidder’s cost goes to 0 it means they bid below the reserve price and their ad is no longer eligible to be displayed to users.