Second Price Auction: Timing of Bid Behaviors
The second price (sealed bid) auction runs the same as the first price auction, except the winner pays the second highest bid. Today, eBay is one of the most popular second price auctions (along with Google, Amazon.com, and Yahoo!, etc) in the markets. According to eBay’s second price auction, each buyer specifies their maximum bid. And then the current bid price is set to the second highest bid, plus a minimum bid increment. But how does the timing of bids favor or disfavor buyers in an ordinary eBay auction?
According to the article from the link, different types of software agents and how well they perform depend greatly on the rules of the game. Since eBay has a fixed deadline, certain incentives may persuade bidders to bid late. In these cases, artificial last-minute bidding agents help bidders by allowing them to out-compete other bidders based on their submitted bids. But this all depends on the behaviors from different bidders (strategy comes into play). This disrupts the goal of the second price auction, where a bidder is to bid their own true value and not be persuaded by other bidders. Is the dominant strategy of the second price auction for eBay really to remain at your own value for the object so that you do not lose by going over or under bidding? Or have other artificial agents changed the scheme of bidding in eBay auctions?
It is clear that strategies and incentives of different market participants are being changed by the availability of bidding agents and changes in bidder behavior. As time progresses and bidders gain experience in the market, the demand for different software bidding agents is increasing dramatically. The fixed deadline for eBay is allowing market participants to physically obtain information that provides the highest bids and deadlines for the object being sold. This is where sniping and other bidding agents are coming into play. They are changing the way the second price eBay auction is working (by allowing market participants to outbid others at the last minute). Although sniping is allowing people to spend more or less than their true value on an object for sale on eBay, the dominant strategy for second price auctions remains as bidding your true value. Regardless of what other people do, bidding your true value is the only strategy that does not allow you to pay more than your own value or lose a potential gain.
Reference: http://stanford.edu/~alroth/papers/eBay.ai.pdf