What Is A Fair Price?

A small question with some pretty big answers.  The simplest one is as follows: the amount of currency traded in exchange for a product or service. That is the premise for a market. A more complex definition, and one that I think more people will adhere to is: the amount of currency traded in exchange for a product or service, where both parties have knowledge of the price of past transactions and the price at which others may be willing to do the same deal. This is the premise of an exchange. Which definition would you pick if you were buying and selling in this market?

In some markets, the technology decides the price of the transaction only using buyers' bids to determine price. When I first heard this, i had a little 'Wait... What?!?' moment. That simply did not make sense to me. How come only the buyers determine the price? In most transactions, the seller sets a price and the buyer agrees to that price or offers a counter bid. So, we got to thinking that building an environment where buyers get to set a price and accept bids would probably result in a more fair price. In fact, we would argue that a fair price is more important than an economically efficient price.  An economically efficient price is what the current ad technology stack is trying to do in growing the private marketplace solutions. There is a problem here, open auctions don't let sellers set a price (a floor, yes), private markets let sellers set prices but bid and historical data are not available to the market. Per the above latter definition, fair price includes knowledge of the market and the ability for both sides to set the price.

Fair prices result from sellers having control over supply and the price at which that supply is represented in the market and buyers having control over demand and the price at which that demand is represented in the market. Currently, publishers lack the technology to understand how to optimize the availability of supply to create bid tension in the market (this is not yield optimization), as such there is very little control of the flow of supply in the markets. Moreover, since the exchanges determine transaction prices using only buyer's bids, there is very little control over the price at which that supply is represented in the market. So, is it any surprise that display advertising prices have been in a complete free-fall for over a decade? When one side of the transaction has far more control on their side of the fence, the economic consequences are well understood.

Our most frequently heard detraction is that there is no common language for describing media; the attributes that drive value and determine the price of a transaction. The focus is always on standardization. The hole in this logic is that it uses standardization as a proxy for reduction in complexity. In fact, standardization can be done via nomenclature instead of categorical classification. What that means is that buyers and sellers have a uniform way to describe the transaction in terms of price and media. Now that everybody is speaking in the same language, we can create larger conversations around trades. More conversations, more market forces, fairer prices.

In short the easiest way to determine a fair price is to understand how much other buyers like me are paying, the changes in the market since those other transactions, and a positive or negative impact on that previous price driven by my needs and the changes in market conditions.