Generalized second-price auction (GSP)

A generalized second-price auction ranks bidders across multiple slots and charges each winner the minimum needed to hold its position — a price derived from the participant ranked immediately below, not from its own bid. It generalizes the single-item second-price (Vickrey) auction, though unlike Vickrey it is not perfectly truthful.

The design explains two persistent observations: winners almost never pay their bids, and quality improvements cut costs while raising position. Search advertising has historically run on GSP with quality scoring, while much of programmatic display has moved to first-price rules.