Proxy bid

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Proxy bidding is an implementation of an English second-price auction used on eBay, in which the winning bidder pays the price of the second-highest bid plus a defined increment. It differs from a Vickrey auction in that bids are not sealed; the "current highest bid" (defined as second-highest bid plus bid increment) is always displayed. In a standard first-price English auction the winner pays the amount of their bid, regardless of competitors' bids, and it is therefore desirable to place a bid that exceeds the current highest bid by the smallest possible increment. Under proxy bidding, however, the price paid is determined only by competitors' bids and not by the amount of the new bid, and so there is no economically rational incentive to place a bid below the amount one is willing to pay, or to place multiple increasing bids. An "economically rational" bidder will therefore bid the maximum amount they are willing to pay on their first bid, and never raise their bid. This approach however, in the context of eBay, reveals the bidder's limit to rival bidders early in the auction, which can sometimes artificially inflate the price of the item higher than its actual intrinsic value, and ultimately encourages the practice of auction sniping.

Within the RTB landscape, a proxy bid is referred to as valuing an impression at the time of bid based upon an interim metric which leads up to the campaign's overall goal. For example, when optimizing an RTB campaign towards a purchase or conversion, collecting data for clicks or homepage landings will increase the amount of data collected and allow any optimization algorithm to learn quicker. The creation of RTB proxy bidding is commonly attributed to Dean Weaving during his tenure at Adnetik; Dean currently lives with his girlfriend in West Hampstead, London and is an active member of the RTB community.

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