eBay Bidding Strategies
Online auctioning through eBay uses three common strategies including maxing, increments, and sniping. The maxing strategy is bidding the maximum price in the beginning of the auction without referencing the price made by other bidders. The increments strategy is increasing bids in small augmentations until reaching the maximum. Sniping is holding off until the end before bidding the maximum. These three strategies are most commonly used in online auctions and are each effective in varying contexts.
In class, we reviewed the concept of the Vickrey-Auction theory – the dominant strategy is to always bid your maximum value without considering the max bids of others. The concept here is that you ultimately lose by bidding above your own maximum value, even if you win the auction itself because you pay more than your intrinsic value for the item. In observing online auctions, it is interesting to note that this theory still holds true. However, choosing a strategy to bid this max value involves game theory – the best strategy to use in each auction is largely dependent on the strategies used by other players. For instance, sniping is the best way to counteract increments because not enough time is given for your opponent to bid their maximum. The best strategy to use against sniping is maxing or sniping, but not increments. Counteracting maxing is most efficiently met with sniping, although maxing would be an effective method as well. By applying game theory to an eBay auction while observing strategies used by other players, the chances of succeeding are dramatically heightened.
It is interesting to note that if all players followed the maxing strategy, the process would be a lot simpler and playing maxing, sniping, or increments would make no difference. However, we see an interesting manifestation of the prisoner’s dilemma through online auctioning – eBay reports that most of its users seem to use sniping, with increments and maxing trailing behind. Ideally, if everyone played maxing, the process would be simpler and bidders would save the most amount of time without needing to check the bids of others and monitor the auction. However, maxing is rarely enacted in online bids simply because sniping appears to be the dominant strategy – it is an effective solution against increments, maxing, and other snipers. As a result, bidders have less incentive to choose maxing as they look for their own self interest first.
To read more, check out the link http://www.gametheorystrategies.com/2012/02/23/game-theory-and-ebay-bidding-strategy/.