In a first-price auction, what happens to the cost of the winning bid?

In a first-price auction, the winner pays the exact amount they bid. This auction model is straightforward: participants submit their bids, and the highest bidder secures the item or ad placement at their own bid amount. This structure incentivizes bidders to carefully consider their bids, as they must balance the desire to win against the risk of overpaying.

In contrast, other auction models, such as second-price auctions, involve the winner paying the amount of the second-highest bid rather than their own, which creates a different strategic environment for bidders. The fixed fee option also deviates from the principle of a competitive bidding process, as it does not allow for individual bidding strategies to come into play. Therefore, the defining characteristic of a first-price auction is that the winning bid is paid in full by the winner.