How is the winning amount determined in a first-price auction?

In a first-price auction, the winning amount is determined by the highest bid submitted. This type of auction format requires bidders to submit their bids without knowing what others have offered. The highest bidder wins the auction and pays exactly the amount of their bid. This system incentivizes bidders to carefully consider their bidding strategies, as they must balance between bidding high enough to win while not overpaying relative to the true value of the item or service being auctioned.

The structure of the first-price auction leads to a competitive environment where participants aim to outbid one another, resulting in the highest bid winning. This differs significantly from other auction formats like second-price auctions, where the highest bidder pays only the second-highest bid. Understanding this format is essential for digital media buyers and planners, as it reflects how real-time bidding for ad spaces often operates, with the highest bid winning the impression.