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.


A study by physicists at Seoul National University confirms via mathematical modeling that 'sniping', waiting for the very last second to submit your bid, is indeed "a rational and effective strategy to win in an eBay auction. Our analysis explicitly shows that the winning strategy is to bid at the last moment as the first attempt rather than incremental bidding from the start." The study appears in the current Physical Review eJournal.
Dan Vergano, USAToday; "On eBay, It Pays to Snipe" 6/26/2006


This creates incentives to bid late, because by bidding late, less informed bidders can incorporate into their bids the information they have gathered from the earlier bids of others, and experts can avoid giving information to others through their own early bids.
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"


Of course, late bidding may also be a best response to other incremental bidding (or "price war") behaviors, including that of a dishonest seller who attempts to raise the price by using "shill bidders" to bid against a proxy bidder.
Alvin Roth, Harvard University & Axel Ockenfels, University of Cologne, Germany; "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet"


The last-minute bidding phenomenon has attracted a good deal of attention among academic researchers. One explanation for last minute bidding is that it is due to the private information of bidders.
Patrick Bajari, Stanford University & Ali Hortacsu, University of Chicago; "Cyberspace Auctions and Pricing Issues: A Review of Empirical Findings"


Experts don't want to reveal their interest in the auction too early. Suppose you are a recognized experts on coins. If you bid early on a particular coin, you may reveal to others that this coin is highly desirable. Perhaps it is better to delay bidding in the hopes that others won't recognize the coin's value, and then sneak in at the last minute with a winning bid.
Hal R. Varian, New York Times; Economic Scene: "Online Users as Laboratory Rats"


Thus, many incremental bidders bid late, but one-bid bidders tend to bid even later. Moreover, the data indicates that incremental bidding significantly diminishes with experience (as measured by the bidders' feedback numbers), while last-minute bidding increases with experience. Overall, the analysis of multiple bids supports the hypothesis that last-minute bidding arises at least in part as a response by sophisticated bidders to unsophisticated incremental bidding.
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"


A salient fact that a number of researchers have noted about bidding on online auctions is that bids frequently arrive very late in the auction. For instance, Bajari and Hortacsu in their survey of eBay coin auctions report that the median winning bid is submitted after 98.3% of the total auction has elapsed.
Patrick Bajari, Stanford University & Ali Hortacsu, University of Chicago; "Cyberspace Auctions and Pricing Issues: A Review of Empirical Findings"


A large majority of responders (91 percent) confirm that late bidding is typically part of their early planned bidding strategy. Most of these bidders unambiguously explain that they snipe to avoid a "bidding war" or to keep the price down. In addition, some experienced Antiques bidders (about 10 percent of all responders, mostly with high feedback numbers) explicitly state that late bidding enables them to avoid sharing valuable information with other bidders.
Alvin Roth, Harvard University, & Axel Ockenfels, University of Cologne, Germany "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet"


Late bidding might also be optimal strategy for well informed bidders (experts) who want to protect their private information about the value of a particular item. Assume that only expert can recognize the true resale value of a good on sale (for instance an antique table). When she bids early in the auction, her bid might be a signal for other bidders that the object is unusually valuable. Bidding just before the end of the auction with fixed end time allows the expert (who can be recognized by her frequent participation or high feedback number) to profit from her information without leaving other bidders enough time to closely examine the item and bid.
Ladislav Wintr, Clark University & Banque Centrale du Luxembourg; "Some Evidence on Late Bidding in eBay Auctions"


The advantage of the late bidding equilibrium is that it avoids a "price war" and bidders are left with higher payoffs. Roth and Ockenfels survey bidders and conclude that avoiding a price war is one reason why they bid late.
Patrick Bajari, Stanford University & Ali Hortacsu, University of Chicago; "Cyberspace Auctions and Pricing Issues: A Review of Empirical Findings"


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