Lessons Learned From eBay Bidding
It is every buyer’s dream to be able to win an auction with a bid that is significantly lower than the true value of the item – essentially maximizing the benefit. Networks has taught us that for every type of auction, there is an optimal bidding strategy. However, theory does not always effectively translate into real life. Instead, one can sometimes find theory merely dwelling in the shadows of practical knowledge and, in other cases, actually implemented in practice. In particular, a comparison can be made between bidding strategies implemented in eBay auctions and theories discussed in Networks.
Among the strategies often utilized in eBay auctions, Bid Sniping and Low-ball Bidding are considered one of the least effective methods. In Bid Sniping, buyers submit their bids at the last second and hope that other competitions will not have the time to respond and enter a higher bid. This strategy does not necessarily violate the theories regarding auctions as long as the last minute bid is lower than the buyer’s true value. In the case of Low-ball Bidding, the strategy is to bid as low as possible so that the bids will remain under the buyers’ true values for that item. However, based on the theory discussed in the class, this strategy will not work. In theory, bidders will continuously bid higher and higher as long as the price is less than but not equal to the bidders’ true value for that item. Therefore, bids will continue to climb and will not remain at low price. In fact, the same flaw occurs in actual implementation. Another type of bidding that is prevalent in eBay is the Buy it Now option. Even without relying on theory, its quite clear to see that if the Buy it Now price is higher than the buyer’s true value, buyer should not buy the item at the Buy it Now price. When it gets blurred is in cases where the Buy it Now price is lower than the buyer’s true value. Buyer can now either forgo the Buy it Now option to potentially buy it for a lower price or buy the item at the Buy it Now price and settle for whatever benefit that results from the buy. In theory, the optimal strategy would most likely to be to purchase the item at Buy it Now price and avoid the risk of losing the auction. Bid Nibbling is another bidding strategy used for eBay auction – it is also considered as the most ideal strategy. Bid Nibbling is conceptually simple. Bid Nibbling involves periodically placing bids just enough to beat the current highest bid. The goal is to be the winning bid majority of the time and consistently increase the overall bid price so that other bidders are warded off. This strategy is not only practical in real life, it also follows theoretical bidding strategies as long as the bidder will only continue to bid higher if bidder’s true value is not reached.
When it comes to auctions, it is clear to see that bidding in actual practice has some roots in theoretical bidding strategies. However, at the same time, theoretical models do not account for deviated bidding methods, such as Buy it Now option. If anything theory and actual practice are two separate but overlapping domains, which support one another.