Second-Price Auctions & Last-Minute Bidding: eBay & Amazon
Auctions on eBay and Amazon all follow the rule of second-price auction, where the highest bidder wins the bid and pays the second highest bid. And thus, it is suggested by both website to bid the maximum of the price that user is willing to pay as early as possible –which makes sense according to the optimal strategy for second-price sealed auction. “An early bid with a reservation price higher than any other submitted during the auction will win the auction and pay only the minimum increment above the second-highest submitted reservation price.” (1093, Roth) It make sense since if one puts down their true-value number and was outbid by other bidder, it simply means that others value the items more. And by not wining the bid, one has a payoff of zero. eBay also points out that it is dangerous to try to bid at the last moment for it is possible that the internet can get crushed or one can miss that last timing very quickly. However, there still seems to be an odd preference for people to snip (bid at last moment). This article focuses such behavior and points out that last-minute bidding has become a usual timing for eBay & Amazon auction. Why? You ask? Lets find out!
If we take a moment to think about the mechanism that goes behind such incentive – since you know the highest you can put down is, say $10, you would want to wait till the last minute. This prevents, for example, an inexperienced bidder who treats this audition as “first-price” and start from a low value to slowly increment. Biding at the last moment can avoid fighting this increment thinking with the inexperience bidder. Moreover, biding at the last moment also restricts people who have the same true-value as you to come in and put down, say $11, but still pays $10 since you were the second highest bidder. In a way, it is very interesting to see how timing also comes into play in online auction. We can see how that eBay and Amazon’s online form has bend a little when dealing with second price auction.
Link:
http://kuznets.fas.harvard.edu/~aroth/papers/eBay.veryshortaer.pdf
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