Price Discovery & First-Price Model

Traditional exchanges use second-price auctions for price discovery. Promovolve uses first-price with RL-adjusted bids.

Traditional: Second-Price Auctions

Bids: $8.00, $5.50, $3.20
Winner pays: $5.51 (second-highest + $0.01)

Truthful bidding: Bidders bid true value because overbidding doesn’t increase cost. Price discovery: Market-clearing price ($5.51) reveals impression value.

In practice, DSPs use bid-shading to game second-price mechanics, and many exchanges have shifted to first-price anyway.

Promovolve: First-Price, RL-Adjusted

Advertisers set maxCpm. The DQN agent adjusts with a bid multiplier:

bidCpm = max(maxCpm × bidMultiplier, floorCpm)

The advertiser pays exactly this CPM — no second-price discount.

Why First-Price Is Acceptable

1. Single-publisher platform: No competitive exchange dynamics requiring truthful revelation
2. RL handles optimization: The DQN agent learns the right bid level over days (5 actions: 0.8x to 1.2x, applied cumulatively)
3. Simpler: No second-bid tracking, reserve prices, or bid-shading countermeasures
4. Thompson Sampling redefines “winning”: High CPM alone doesn’t win — creative must also have good CTR

RL as Price Optimization

The DQN agent’s reward function (clicks - overspend penalty) naturally discovers efficient bid levels:

• If overpaying (high CPC, spendRate > 1.5): reward drops → agent reduces multiplier
• If underbidding (low win rate, low impressions): agent increases multiplier
• Converges to the bid level that maximizes clicks within budget

No Market-Clearing Price

Promovolve does not discover market-clearing prices:

• Advertisers set maxCpm based on business judgment
• RL optimizes pacing, not price discovery
• No mechanism to tell advertisers they’re over/under-paying vs competition

This is acceptable for internal advertising where pricing is a business decision, not a market problem.

Comparison