Floors In RTB: Are hard and soft reserve prices known to the DSP?

I assumed that before bidding, DSPs could not be sure whether an SSP applies floor price rules to an auction. Now, I saw some remarks in the academic literature implying that buyers know about the existence or even the exact quantity of floor prices.

In practice, do SSPs communicate their floors?

This question was asked on quora, below is my answer.

Floor Prices in an AuctionThe answer is: sometimes. Exchanges sometimes express floor or bid guidance in the bid request. This is not required for the market to operate; so many exchanges do not provide any guidance. Floors are almost always in play. In most cases they are dependent on a wide variety of variables including: the site, browser, device, day of week, time of day, audience data, user’s language, and geographic location of the user.

Auction Mechanics

Floor prices, from an academic standpoint, are there to protect the base value the publisher has placed on the inventory. Bids falling below the floor, or reserve, are usually rejected by the exchange. Losing bid information might be recorded to give the publisher insight on the value advertisers are placing on the inventory and accompanying traffic.

These academics don’t necessarily apply to soft floors. The soft floor is there to capture value from the advertiser’s bid. Any winning bid falling in the range between the soft and hard floor will, in essence, be participating in a first price auction, rather than a Vickrey, or second price auction.

Price Floor Discovery

DSPs can, and have built systems to estimate the reserve prices, or at least the going rate, when guidance is not provided. Many of these systems in turn give guidance to advertisers when they are planning their media buy.

If you are friendly with a DSP, you might consider asking them which SSPs and exchanges are providing bid guidance.

For more on this topic: Rubicon Project published an excellent white paper on floors in the RTB auction. [requires registration]

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