Second-Price Auctions in eBay and Amazon
https://pubs.aeaweb.org/doi/pdf/10.1257/00028280260344632
In the essay written by Alvin and Axel, they talk about an application of second-price auction used in eBay and Amazon- two famous online auction sites. In these websites, a bidder submits a reservation price then uses the maximum price to bid for him by proxy. In other words, a bidder submits his reservation price early and register the resulting bid as the minimum increment on the previous high bid. After several reservation prices are submitted, the bid rises until the second-highest submitted reservation price is exceeded. So the dominant strategy is to bid early with a reservation price higher than other submissions and win the auction and pay only the minimum increment above the second-highest submitted reservation price.
In class, we investigated different types of auctions: first-price and second-price auction. Each has its own dominant strategy. For the first-price auction, a bidder should bid below true value. For the second-price auction, a bidder should bid truthfully. However, either strategy does not involve the “time” factor. Nowadays, we encounter auction done online more frequently; they are easily reachable and deal with a wide range of pricing. It is interesting to notice that for online auction, bidding early can bring different results than bidding late. For eBay and Amazon, bidding early is the best strategy because they both have fixed end time for the auction.
In the article, they also introduce the concept of “bid snipping” which only applies to the online auction. Alvin and Axel discuss the effect of last-minute bidding in the auction and how it changes the dominant strategy.