Why historically (and currently) only one single bid was allowed for each DSP per impression? Why hide demand from the exchange and create opportunities for the DSPs to arbitrage? – I know this is changing now with the possibility of multiple bids per DSP (openRTB v2) but why ad exchanges let this happen at the beginning?
This question was asked on quora, below is my answer.

Short Answer

A multiple bid response was discussed at the very first OpenRTB meeting.  It was not seen as a favorable feature by the demand side, at first.  They preferred submitting one bid.  Supply side partners were not in a position to force the issue, nor had the necessary research been done to support the idea.

Early Days

From the supply side’s perspective, as with many transaction systems, early efforts in RTB were focused on connecting the pipes.  RTB represented a new source of demand and the pressure was applied to getting plugged in to as many DSPs as possible.

On the demand side, there was resistance to the idea of sending multiple bids per impression because DSPs didn’t want to “second price” themselves – meaning that they didn’t want their second highest bid submitted, in a multi-bid response, to be used as the second price in the auction against their first bid. Their short term solution was to submit only one bid per auction.

Middle Days

In 2011 some supply side systems were supporting a multiple bid response.  Adoption on the part of the DSPs was very slow. Having a token DSP sending multiple bids per impression was the norm.

In 2012 some auction research was brought to light to point out the inefficiencies that single bid response brought.  DSPs who were reluctant to submit multiple bids were unknowingly (or knowingly) acting as bidding rings, which is known to be detrimental to an auction based market. See: Making RTB a More Efficient Marketplace for Both Sides.

Recent Days

DSPs are now adopting a multiple bid response, which is improving market liquidity.  Not every DSP is doing it.  Some may never do it.  Many are very comfortable submitting one bid.  However, enough are sending in multiple bids to make a difference.  With added liquidity and upward pricing pressure, publishers are responding by bringing more and higher quality inventory into the RTB market.