Last Minute Bidding on eBay
How do the rules of the game impact the behavior of its players? This paper discusses the bidding strategies of buyers on eBay and Amazon, e-Commerce sites that facilitate internet auctions. A big attraction of auctions through the internet is that buyers do not have to be at the same place to participate, which allows sellers to auction to a wide audience of people. They also are conducted over a period of days, which allows bidders flexibility in the time they bid. Although Amazon no longer offers auctions for items, the prevailing idea is that auctions with a set end time (eBay) have different strategies than ones without one (Amazon).
Since eBay is essentially a second price, sealed bid auction (highest bidder pays increment above second highest price), the best strategy for bidders is to bid the amount that they value the item to be. By doing this, one will only win the auction if their willingness to pay is higher than the last bid, ensuring that they do not pay any more than what their value is. eBay has an option for bidders to submit their maximum bid, and automatically increments (“proxy bid”) on their behalf up to that amount. The paper shows two common bidding strategies on eBay: bidding within the closing seconds of an auction and bidding multiple times (increasing one’s maximum bid). Reasons for bidding late include avoiding bidding wars, maximizing on earnings (final price subtracted from value), and protecting information (bids depending on peoples values). These strategic advantages of last-minute bidding are eliminated in Amazon-style auctions, that are extended past end times until ten minutes have passed without a bid.
The difference in late bidding in eBay and Amazon reveal that late bidding “arises in large part from the rational response of the bidders to the strategic environment.” The rules of a market like eBay generate incentives for software tools like “sniping agents” that allow bidders to submit proxy bids at the last moment. Personally, I would still prefer this over an Amazon-like auction, as I enjoy the waiting-until-the-last-second rush before bidding on an item and potential to maximize my earnings.
Sources: http://web.stanford.edu/~alroth/papers/eBay.ai.pdf