About Nibbling and Sniping
What is the optimal bidding strategy on eBay? Actually, this should be a fairly easy question to answer. EBay is – except for minor differences – an ascending-bid auction. That means bidders increase their bids until only one bidder is left, which will win the auction at this price. As we have seen in class, the optimal bidding value is your maximum value. But when should you submit your bid? It seems that there shouldn’t be any difference at all, but eBay auctions have a twist: the end time is rigidly fixed and there are people having difficulties in determining their maximum values for objects. The combination of these factors leads to the development of a bidding strategy called “nibbling”.
If a bidder doesn’t know his maximum value for an object, how will he find it then? He simply uses the current bid as an indicator for the true value of an item and updates his bid accordingly. Researchers showed that it is easier for people to state whether a price for an object is too high or low rather than naming their concrete maximum value. This means, some bidders will increase their bids by small increments until they either are the highest bidder or are not willing to pay more than the current bid. This process of gradually approaching one’s maximum value is called nibbling.
If you make your bid to early, nibblers will increase their bids as a consequence and this makes you less likely to win the auction. So what should you do? First, figure out what your maximum value is. If you are unsure about it, try to think about the highest amount you would fill in the bid field. Once you know your value, just wait for the very last minute (or seconds) to bid. This strategy is called sniping, because your bidding is target-oriented: you are only going to bid once. By using sniping, you can avoid other people (nibblers) to increase their bids again due to no time being left for them to respond to your bid. The analysis of winning bids has shown that people that snipe are more likely to win an auction (http://pre.aps.org/abstract/PRE/v73/i6/e067101).
“Isn’t sniping unfair?” you may ask yourself. In fact, by bidding as late as possible you don’t help nibblers to better estimate their maximum values. Nibblers feel deceived, because some of them would have been willing to pay more than the winning price, but they hadn’t been able to raise their bids again. However, the reason for them not winning the auction is mainly that they bid not high enough, not the actual act of sniping. Bidding your maximum value is always a dominant strategy, even when (other) snipers are present, so in order to save yourself from frustration, you should think about the maximum value before an auction reaches its last seconds.
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http://www.omniscienceisbliss.org/sniping.html