As Steven Levy described it in his book "In the Plex", back when Google needed a money-making scheme, their engineer Eric Veach unknowingly re-invented an auction system that had been devised by a Nobel Prize-winning economist, as a way to prevent automated bots from gaming the Adwords auction system:
> Eric Veach particularly disliked one aspect of the Overture auction system: the fact that advertisers were bound to pay the amount they had bid, even if the next lowest bidder had offered significantly less. “That means that advertisers always have an incentive to lower their bids [in subsequent rounds],” he says. (This was known in the auction world as “bid shading.”) As an example, he would cite the case where an advertiser bid 50 cents and the next highest bidder offered only 40 cents. Clearly the high bidder would be unhappy, because the optimal bid was 41 cents, and the winner was stuck with paying nine cents too much. A cottage industry of software vendors had provided programs to automate bid shading on Overture, so winners would keep submitting slightly lower bids, and losers would edge up. “I wanted to avoid that cat-and-mouse game,” says Veach.
> So Veach devised a different model: the winner of the auction wouldn’t be charged for the amount of his victorious bid but instead would pay a penny more than the runner-up bid. (Example: If Joe bids 10 cents a click, Alice bids 6, and Sue bids 2, Joe wins the top slot and pays 7. Alice is in the next slot, paying 3.) It was incredibly liberating because it eliminated the fear of “winner’s remorse,” where the high bidder in an auction feels suckered by paying too much. In the Google model, no one would feel like an idiot for paying a dollar a click when the competitor below them bought a slot on the same page, positioned just a few pixels lower than their ad, for only 10 cents a click. In that case, a winner would get the prime position for 11 cents.
Levy, Steven (2011-04-12). In The Plex (pp. 89-90). Simon & Schuster, Inc.. Kindle Edition.
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