Combatting Sniping in eBay Auctions
Sniping is a phenomenon that often occurs in online marketplaces with auctions that end at a specific time, such as eBay. Sniping occurs when a bidder submits a slightly higher bid at the very last second of the auction, preventing others from submitting a counter-bid. As the article discusses, this leads to a sense of being ‘cheated’ in the auction. This reduces the amount of enjoyment bidders derive from ebay auctions, which is a problem for ebay itself. The article also proposes a solution to this problem — using a 2nd price auction. Of course, ebay already uses 2nd-price auctions, but many bidders don’t treat it like it is one. Here, we discuss the strategy behind 2nd price auctions, and how conforming to the optimal strategy would reduce sniping and (at the very least) eliminate feelings of being cheated if sniping occurs.
In a 2nd price auction, the bidder with the highest bid wins, and they then pay the price of the 2nd-highest bid. Ebay is similar, but the bidder pays a price that is slightly higher than the 2nd-highest bid. In a 2nd-price auction, the dominant strategy for the bidder is to bid their actual value for the product. The reasoning is as follows: if the bid is losing, then the bidder gets 0 utility. If the bid is winning, then the bidder’s utility is their value of the product minus the price they paid. Now, let us have a situation where the bidder’s true value is below the highest bid. If the bidder then bids higher than that bid, their utility will be negative, and it would have been better to not bid at all. Now, let us have the situation where the highest bid is below the bidder’s true value. Then, if the bidder bids their true value of the product, they will pay the second-highest price, and they will have a positive utility. If they don’t bid, then their utility is 0, which is worse.
Therefore, the optimal strategy in ebay bidding would be to bid your true value of the product. This strategy combats the phenomeon of sniping in ebay auctions. Bidders ‘snipe’ auctions in order to get a better deal; however, if their evaluation of the product is less then the highest price, then they will not snipe, which reduces sniping. If their evaluation is higher than the highest price, then they will ‘snipe’ the auction. However, the previous bidder will feel less cheated, as the sniper had bid above the maximum the bidder would have been willing to bid.
Then why does sniping occur on ebay, and why do people feel cheated? I believe bidders still treat their bid as the price they would pay if they bid; therefore, they try to bid as low as possible. I blame this on ebay’s site for not explaining that buyers pay the 2nd-highest bid. I had attempted to confirm that ebay does use 2nd price auctions, but the only info I found on this was through ebay community answers and the above article; there is nothing on ebay’s actual site stating that the bidder only pays the 2nd-highest bid. This should be a worry for ebay, as angry bidders might not go to ebay anymore as they continue to feel cheated through sniping. To combat this, ebay should explicitly state on their auctions that bidders should bid their true evaluation of the product, along with an explanation why.