Auction Bidding Research Results

University researchers in economics, mathematics, and physics have studied the dynamics of online auctions. Some of this work has been funded by research fellowships from the prestigious Alfred P. Sloan Foundation. The research has included the examination of "late bidding" in online auctions, and its resulting impact on success rates. The following are excerpts from those findings, and press clippings.

I think you might do the most good if you advise bidders to form an opinion of how much they are willing to pay for an item, so that they don't get caught up in a bidding war and pay more than they will be happy with. But, that being said, if they know what proxy bid they want to submit, it won't hurt them to submit it very near the end. So, sniping is a good strategy, for those with the time to do it. (You can also pay a fee to third party sniping software on the web ....)
Alvin Roth, Economist, Harvard University, from USA Today; "On eBay, It Pays to Snipe" by Dan Vergano. 6/26/2006

Sniping can help bidders to get better prices on eBay. But sellers too can profit from sniping, because the possibility of sniping may attract more bidders. For instance, sniping can lead to more bidding from experts, because by bidding late, experts can avoid giving information to others through their own early bids. Sniping can also increase the excitement and entertainment value of bidding, which again attracts more bidders.
Axel Ockenfels, University of Cologne, Germany from USA Today; "On eBay, It Pays to Snipe" by Dan Vergano. 6/26/2006

The reasoning is based on the observation of sniping in these auctions: the presence of a common-value element in an eBay auction suggests that bidders should wait until the last minute in order to avoid revealing their private information. If all bids arrive at the last minute, a bidder will not be able to update his beliefs about the common value V using the bids of others�hence his bidding decision will be equivalent to that of a bidder in a sealed-bid second-price auction.
Patrick Bajari, Stanford University & Ali Hortacsu, University of Chicago; "Insights from Internet Auctions, Journal of Economic Literature"

We showed that bidders with higher feedback numbers bid on average later in eBay auctions. This supports the hypothesis that bidders with expertise will tend to bid late in order to protect their private information. However, the observed pattern can be also due to the process of gaining familiarity with auction rules and possibly realizing that late bidding is superior strategy.
Ladislav Wintr, Clark University & Banque Centrale du Luxembourg; "Some Evidence on Late Bidding in eBay Auctions"

Yet in related single-item eBay auctions, many experienced bidders do not enter until the last minute to avoid early price wars and signaling. This prevalent behavior in eBay has been termed sniping. Given the relative ease of connecting to an auction Website (as opposed to traveling to an auction house), the two conflicting incentives could be easily resolved by adopting the following strategy: place one early bid to establish time priority, and then snipe during the auction's closing stages to compete at the margin.
Ravi Bapna, Paulo Goes & Yiwei Jin, University of Connecticut & Alok Gupta, University Of Minnesota; "User Heterogeneity and its Impact on Electronic Auction Market Design: An Empirical Exploration"

Last-minute bidding may be a best reply to incremental bidding. To see why, put yourself in the place of the bidder described earlier, who is willing to pay up to $100 for an antique coin. Moreover, suppose that there is only one other potential bidder, and that you believe that this bidder is willing to pay more than you for the coin, say $110. This other bidder, however, bids incrementally, that is, he starts with a bid well below his maximum willingness to pay and is then prepared to raise his proxy bid whenever he is outbid, as long as the price is below his willingness to pay. Last-minute bids can be a best response to this kind of incremental bidding because bidding very near the deadline of the auction would not give the incremental bidder sufficient time to respond to being outbid. By bidding at the last moment, you might win the auction at the incremental bidder's initial, low bid, even though the incremental bidder's willingness to pay exceeds your willingness to pay.
Axel Ockenfels, University of Magdeburg, Germany & Alvin E. Roth, Harvard University; "The timing of bids in Internet auctions: Market design, Bidder behavior and Artificial agents"

Marsha Collier has been using eBay since 1997 and is the author of "Santa Shops on eBay." In an attempt to outbid fellow shoppers, Collier said, make your maximum bid a fractional number. For example, bid $36.01 for that commemorative Elvis plate you've had your eye on. That way, you could win by a hair. Bidding early rarely works, but bidding late � very late � can sometimes be a winning strategy, Collier said. She suggests a technique called "sniping." Open two Internet browser windows just minutes before the auction expires. Ready your bid in one of the windows while refreshing the other to update the countdown clock. With a few seconds to go, hit the "Confirm Bid" button. There are also companies that will automate the bidding process for you for a fee.
Elizabeth Lazarowitz, New York Daily News October, 2006; 'He's got eBay in his blood'

An important conclusion we can take from the analysis of sniping is that bidders appear to be behaving strategically,
Patrick Bajari, Stanford University & Ali Hortacsu, University of Chicago; "Cyberspace Auctions and Pricing Issues: A Review of Empirical Findings"

Bidding in the last minute can be thought as optimal response to the presence of a bidder or bidders who execute multiple bids in one auction. Bidding late is efficient strategy as it does not give the incremental bidder sufficient time to respond.
Ladislav Wintr, Clark University & Banque Centrale du Luxembourg; "Some Evidence on Late Bidding in eBay Auctions"

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