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Ebay vs. Craigslist. How are they different and which should you sell on?

Ebay and Craigslist represent two of the most popular online auction systems in the world but operate in very different ways. In an Ebay auction, bidders bid to the highest amount they are willing to pay until all bidders, except for one, drop out of the auction. This type of auction format is most similar to second-price ascending-bid auction. In this type of auction, bidding takes place in real time and bidders have knowledge of everyone’s bids. Additionally, the winner does not have to pay the full amount of their winning bid. Instead, the amount payed is incrementally higher than the second highest bid. A Craigslist auction takes place very differently, however. In this type of listing, bidders send an amount that they are willing to pay to the seller without any knowledge of the other bids being placed. This type of format is most similar to a first-price sealed-bid auction because bidders are required to pay the total amount that they bid and they are unable to have any information about the bids of others.

While it may seem that the auction format would have a great effect upon the price at which an item would sell, in theory that effect is negligible when an individuals bidding strategies are considered. In an Ebay style auction, each bidder knows that they only have to pay slightly more than the other bidder, and therefore they do not have to pay full price for the item. As a result, the strategy for each bidder is simple, keep bidding up until they surpass that which they are willing to pay for the item. In a Craigslist auction, it may seem that because the highest price is chosen independent of the second highest bit, the item should always sell for a higher price than if listed on Ebay. However, this is not the case because each bidder knows that in order to win the item they don’t have to pay full price. They must estimate some amount below full price and above that which the bidder believes other people would pay for the item. In theory, this would come to a very similar selling price to an Ebay auction.

In this type of comparison, it seems that there is no clear choice for sellers. In the real world of auctions, the highest price would most likely be found when individual private values are considered. In such cases, a person may not always behave logically according to their strategy. For example, a bidder may bid past their maximum amount because of some other factor that makes the item more important to them. Additionally, a seller may not always accept the highest bid on Craigslist if they prefer one bidder to another.

http://mindyourdecisions.com/blog/2008/05/06/why-ebay-and-craigslist-are-similar-in-theory-the-revenue-equivalence-theorem/

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