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Sniper no sniping, Sniper no sniping.

One of the things we learned about in this class is the different types of auctions. For the most part, the average person today does not usually purchase goods via auctions (other than in specific cases like livestock or art). However, most people have used the bidding website, eBay, to purchase goods at some point in their lives. eBay remains one of the most popular auction sites on the internet and operates according to the rules of a second price auction. In a second price auction, the person who wins is the one who bids the highest value but that person only pays the bid of the second highest bidder. We will examine why the best possible way to play by the rules of the game is to “snipe” an item with one’s maximum value for that item.

We have already seen in class that in second price auctions, it is a dominant strategy to bid your true value. By bidding higher than your true value, you will only affect the outcome of the auction if someone else already bid higher than your true value and you end up exceeding that bid. In this case the second price you end up paying is higher than any value you could get from the item and you end up getting a negative payoff. Bidding lower than your true value only affects the outcome if you accidentally bid lower than the next highest bid, in which case you lose the auction and get zero payoff. Therefore, ideally everyone would pay their true value in a second price auction scenario like eBay.

However, this is not always what happens in real life. Many patterns of behavior have been spotted among eBay users, especially since not all of them are educated about the best bidding strategies to use when buying. One common strategy is “nibbling”, where a user gradually shades his or her bid upwards as necessary to remain on top. The idea is to keep all bids to a lower price in the hopes of getting a better deal. Most people adopt this strategy because studies have shown that people tend to be bad at determining their maximum value for an item in real life situations. A person who is unsure of maximum value may actually even end up bidding a price that is higher than his or her own true value simply because the prices are going up in gradual increments, and going up “just a little bit more” might be a tempting choice to take. The problem with bidding your maximum true value right away (even if you are well educated in the subject of auctions) in a situation where not everyone is fully informed is that some person may end up bidding higher than you, even if it exceeds their own true value, simply because your bid may be close enough to their bid that they would be willing to overlook how they are bidding in relation to their true value. Therefore, according to experts, the absolute best way to win an auction is to bid your absolute maximum value for that item at the very last moment possible, otherwise known as “sniping”.


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October 2016