Vickrey Auction
01 Definition
Vickrey Auction meaning: A sealed-bid auction where the highest bidder wins but pays the second highest bid amount.
A Vickrey auction is a sealed-bid, second-price auction from economic theory. Bidders submit hidden bids, the highest wins, and the winner pays what the second highest bidder offered. This structure encourages honest bidding and influenced the design of early online ad auctions.
Also called
Why it matters
How Vickrey Auction fits the work
The Vickrey model is the theoretical basis behind second-price ad auctions, so it explains why bidding true value was once the recommended approach.
In context
In a Vickrey auction, the winner bid 10 dollars but paid 7 dollars, matching the second highest sealed bid.
Practical note
The Vickrey auction is a theoretical ideal; live ad auctions add quality scores, reserves, and other factors, so real behavior differs from the pure model.