Ebay’s Auction System (Unlike Anything We have talked about in class)
In class, we talked about ascending-bid auctions, descending-bid auctions, first price auctions, and second price auctions. In the past, auctions were held at events where people were physically present. Nowadays, they are mostly held online. Ebay for instance, is one of the most prominent sites for auction bidding. At first glance when we look to identify and categorize Ebay, we see that it’s auction option for items is an ascending-bid auction. We assume that players bid until no one wants to bid any higher, and the winner takes home the price. However, there are many other factors that make Ebay’s auction system more deceiving and tricky than it appears.
First and foremost, there are strategies that new Ebay bidders are not aware of. It is often sighted that someone who just got introduced to Ebay will bid on an item all too early and too soon. Ebay has an implemented system where it helps you bid “one increment more” than the next highest bidder. As a result, bidding early will continue to increase the final price, resulting in something enormously high.
Instead of raising prices after one another, what is important to pay attention to is the information tag that says “maximum bid” when you enter your bid. The maximum bid in this case, is the highest amount in which you are willing to pay for the item. Anything above it, you will not pay. As a result, if bidder A sets $100 as his “maximum bid,” and the next highest bidder only bids $50, then bidder A only needs to pay a standard increment above $50. From this, we also see that Ebay’s action system also has elements of the Second Price Auction in it.
Experienced Ebay bidders only bid once, and that is at the last second. This is because there is no need to raise the price. If everyone bids at the last second, then the price is as low as it can be, while awarding it to the bidder who values the item the most. The dominant strategy is always to bid your true value, and bid at the last second possible. This is said to save everyone from “auction fever,” when the prices go so high because everyone keeps increasing the price.
In addition, what many people never consider are the shipping costs of the item. Depending on where you live, that can vary widely. For instance, if you are willing to pay $100, meaning that anything more would not give you the maximum payoff you can get, and the shipping charges are $10, then you can not bid more than $90 if you want to maximize your output.
Bidding is emotional
Despite the auction being online and not with bidders shouting over one another, players can get just as emotional online. Once you bid, you are obligated to buy the item by law if you win. This does not take into account if you see a better item or price the next day or the day after. What Ebay doesn’t tell and most bidders don’t know is that auctions are open for exactly 1, 3, 5, 7, or 10 days. This means that everyone knows exactly when the auction closes. As a result, sometimes people have tendencies to purely want the item more and continue to bid and as a result receive negative payoff for their bid.
To conclude, it is always best to bid last second. There are already emotional people driving up the price unnecessarily high. You don’t need to multiply that effect to give Ebay more profits. Bidding early also makes people think that the item is more valuable than it initially appeared. Bid late. Bid your true value. That is a dominant strategy. Consider shipping costs so you don’t end up spending more than you had expected.
https://www.thebalance.com/understanding-the-ebay-auction-automatic-bidding-system-1140186
http://www.kenrockwell.com/tech/ebay/whats-it-worth-to-you.htm