Bidding Strategies for eBay Auctions
With the growing popularity of online shopping, a lot of customers have turned to online auction sites such as eBay in order to find great deals. Many times, products on eBay sell for a much lower price that the retail price, causing customers to wonder what the best strategy is for bidding on websites similar to eBay. Essentially eBay operates as an English auction or second price auction, where bids increase and bidders win the auction by placing the maximum bid when the auction closes. As we learned in class, the dominant strategy for these types of auctions is to bid your true value, but in the article linked below, eBay details popular strategies and their effectiveness.
The first type of strategy that the article describes is “bid snipping” where the bidder will wait until the last minute to place their bid for the hopes of getting the lowest price possible. This is a popular strategy that has many setbacks. For instance, placing a bid higher than the current bid could result in a bid that’s higher than the second highest bid, but is still less than the highest bid because eBay uses an automatic increment system. Also many people will be implementing the same strategy and will place their bids all at once right before the auction closes, so the highest bid right before the auction closes might not be an accurate representation of the actual selling price.
The next strategy is “proxy bidding,” which is the safest strategy for bidding because it is essentially bidding your true value, which as we discussed in class, is the dominant strategy for this type of auction. The buyer will indicate the maximum price that he/she is willing to pay for the item (their true value) and eBay will bid for the buyer and place the lowest bid possible, increasing the bid until the current bid exceeds the maximum price that the buyer is willing to pay. The buyer will win the item for the lowest price as long as his/her value is greater than the maximum bid for the item.
The strategy that the article describes as “arguably the most ideal strategy” is “bid nibbling.” Essentially the buyer will increase the price of the item periodically to drive away competitors. When the price of an item is very low (greatly below retail price), there will be a lot of competition at the end of the auction over the item, causing your chances to get the item to be lower than if the price were higher and there was less competition because the higher price discourages bidders who are not serious about buying the product. This strategy seems counterintuitive because buyers want to keep the price as low as possible, but many times, buyers will be more successful buying a product for under their true value when they increase the bids by small increments.
In addition to traditional bidding strategies, eBay also offers a Buy it Now option that could be a good fit for buyers that don’t want to wait for the auction to end and find a item which has a Buy it Now price that is lower than their true value. This shortcuts the auctioning process and guarantees the buyer the item for under their true value. Any of these strategies can be effective, but if you want the safest and most effective strategy for second price auctions, bidding your true value is always a safe bet.
http://www.ebay.com/gds/Bidding-Strategies-Tips-for-Successfully-Winning-Items-/10000000004396516/g.html