VCG auction – the second price auction, which is used by Yandex.Direct to calculate the cost of advertisements on the first page of the search

VCG auction – SEO WIKI

VCG auction (Vickrey-Clark-Groves auction) is a one-round auction system for placement of contextual advertising ads, in which participants know only their own bids, and the cost of one click (CPC) for all participants at the rate set by the retired participant.

Since September 1, Yandex.Direct set such an auction instead of a GSP auction for ads in premium displays. The VCG auction in Yandex.Direct assumes that it depends on the traffic – the more traffic is collected, the higher the price.

Let’s say that 5 advertisers compete with each other for 4 places in the premium block. Their keyword bids are 10, 9, 8, 6, and 5 pounds. respectively. If the quality factors and forecasts of CTR of ads coincide, then four advertisers with the highest bids will fall into the block.

The rate for the main traffic of each ad is set by the retiring participant – it is equal to 5 pounds at all positions. The bid for additional traffic (that is, the traffic that competitors have not received) is set by the advertisers whose ads are shown below. The higher the position of the ad, the more traffic it will receive, the more competitors are located lower and the more you need to pay for additional traffic. The number of clicks on ads and the average cost of these clicks will depend on the position of the ad in the block:

Position

Rate

Traffic volume

(% of total traffic)

What value is debited

one

10 pounds

one hundred %

Gets 65% of traffic for 5 pounds

+ 10% of additional traffic for 6 pounds. (bid is determined by the 4th competitor);
+ 10% of additional traffic for 8 pounds. (the bid is determined by the 3rd competitor);
+ 15% of additional traffic for 9 pounds. (bid is determined by the 2nd competitor).

2

9 pounds

85%

Gets 65% of traffic for 5 pounds

+ 10% of additional traffic for 6 pounds. (bid is determined by the 4th competitor);
+ 10% of additional traffic for 8 pounds. (bid is determined by the 3rd competitor).

3

8 pounds

75%

Gets 65% of traffic for 5 pounds. (determines 5 competitor bid)

+ 10% of additional traffic for 6 pounds. (4th competitor determines the bid).

four

6 pounds

65%

Gets 65% of traffic for 5 pounds.

The Vickrey-Clark-Groves auction for ads in Yandex.Direct takes into account the click-through rate (CTR), which is calculated individually for each ad and each position. In fact, it turns out that additional clicks are paid that competitors have not received, and advertisers do not overpay for one position several times. Moreover, with VCG, prices for the 3rd and 1st positions do not differ as much as with GSP.

What is recommended to focus on working with such an auction for contextual advertising campaigns:

separate search and thematic advertising, conduct them differently;
set real rates – those that are willing to pay, and those that will be profitable for the business;