How do you rank things when there is a tie (see details)?

Suppose there are four contestants and two of them are tied for second place. Would you say the person who came in last got third place or fourth place?

In other words, which of these two ways would you represent the rankings:

First place: Contestant 1
Second place: Contestants 2 and 3
Third place: Contestant 4

or

First place: Contestant 1
Second place: Contestants 2 and 3
Fourth place: Contestant 4

I’ve seen it done both ways, and I can understand the logic for each. But I’m wondering what you all think.