EBay Bidding Strategies
The rise of online auctioning sites such as EBay has led to new strategies when dealing with auctions. Normal English auctions go on until no other buyers are willing to bid. EBay, however, adds a timing component to this. Auctions only run for a specified amount of time, and the highest bidder once time runs out gets the item. EBay is essentially a second price auction in which the highest bidder pays the second highest bid for the item.
Barry Hughes’ article outlines three popular strategies that have emerged due to this style of auctioning. The first strategy is when the buyer bids his maximum value at the very start of the auction, which he calls maxing. The second strategy is when the buyer bids a low price and increments this price until reaching his maximum value. The third strategy is for the buyer to wait until the very last minute to bid his maximum value which is called sniping.
As with traditional second price auctions, the dominant strategy is to not bid above your maximum value for a given item. EBay, however, now gives the buyer many ways to implement this strategy. We can look at the three strategies outlined in the article and see if a Nash equilibrium exists. For example, if we have two buyers bidding on the same item, both want the item for the lowest possible price and thus are colluding to keep the price down. Neither would choose to place their maximum bid because sniping or incrementing their price may lead to a better payoff. If one buyer chooses to increment, the other can snipe to win the auction. Both buyers sniping, therefore, would be the Nash equilibrium in an EBay auction. Although the success of it depends mainly on timing, this strategy seems to be the most popular and effective strategy used by EBay buyers.
http://www.gametheorystrategies.com/2012/02/23/game-theory-and-ebay-bidding-strategy/
by rc554