Amazon’s advertising auction is a ‘Second Price’ or ‘Vickerey’ auction. In this type of auction, the winner pays the second highest bid to get a click. 

If seller Bob bids $0.50 for a Keyword and seller Alice bids $0.25 for the a Keyword, then when there’s a buyer search term that matches both Keywords, Bob’s ad will show up over Alice’s. However, when a buyer clicks on that Ad, Bob will only pay $0.25 for the click, since that was the ‘second price.’ 

The best strategy in a Second Price Auction is to bid the true value of a click. A higher bid than the true value will get more clicks and more sales, but lose money. A lower bid than that will get fewer clicks and less sales, and leave money and sales rank on the table.

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