USA Today headline: On eBay, it pays to snipe.

At first this seemed nonsensical to me. On eBay, the rational thing to do is to bid the maximum price you're willing to pay for an item. Either you win the auction and get what you want at a price you're willing to pay, or you don't. Either of these outcomes is better than what could happen differently if you bid too low (regret not being able to buy an item because you're outbid) or too high (have to pay more than you think the item is worth). And if you're just going to bid your own maximum anyway, why should it matter to you whether you bid it now or later?

But I think the point is that not all bidders are rational in this way: having higher bids visible on an item encourages some bidders to change their own estimates of what an item is worth, and bid higher themselves. So if you want to buy an item for a lower price, you don't want to encourage these irrational buyers. Sniping (the practice of sending in bids as close to the deadline as possible) discourages irrational bidders leaving you in a smaller market with only the rational ones, and therefore you're more likely to win the auction and get a lower price.

If it were in eBay's interests to encourage rationality, they could keep all bid amounts secret until the deadline. But of course it's not in their interests to do so...




Comments:

brooksmoses:
2006-06-26T00:41:49Z

That's something I've very definitely found to be true.

The obvious answer to "If you're just going to bid your own maximum anyway, why should it matter to you whether you bid it now or later?" is that it affects how much you are likely to end up paying. As I say, that's obvious; the question is how it does that.

In my experience, in a substantial number of the auctions the high bidder has bid just enough to be the current leader. This implies that there are a large number of people who, instead of putting in the maximum that they'd be willing to bid, simply put in the minimum bid required to be the current leader. I could come up with all sorts of conjectures on why this is, but I think one of them is simply that figuring out a maximum bid is a much more complicated decision than "Would I buy this for $32.50: yes/no?"

In any case, what that means is that, if there is someone who is using that algorithm to bid on an item I want, it is in my interest that the current price be as low as possible when they bid. And, in particular, it is in my interest that (if their maximum bid is higher than mine) the current price not be my maximum bid when they bid.

Thus, the ideal way to deal with these people is to bid as late as possible, which means I only have to compete with other snipers. The last few hours are particularly important in this, because that is the most likely time for high bids simply because browsing by soonest ending time is one of the most common ways to browse.

A further effect, which is of course completely not rational, is that having won a last-minute get-up-at-5am bid-by-hand sniping war on what ended up being about $400 worth of forty-year-old model cars (I was young and unmarried then), I'm somewhat more inclined to feel that they're worth the $400 than if I had merely coldly calculated the amount. And, hey, the excitement was worth something, too -- which is, I suspect, worth quite a lot to eBay.

11011110:
2006-06-26T04:53:00Z

This implies that there are a large number of people who, instead of putting in the maximum that they'd be willing to bid, simply put in the minimum bid required to be the current leader.

You mean that instead of being susceptible to irrational exuberance they have some maximum bid price (that they may not themselves know) and are following an inefficient version of the rational bidding strategy? In which case you can take advantage of their slower reaction times by sniping them. I'm more sympathetic to the arguments of this type of bidder that sniping is somehow "unfair" (whatever that means in a system in which each bidder is treated identically) but not so sympathetic as to think the system should be changed to cater to them.

A further effect, which is of course completely not rational, is that having won a last-minute get-up-at-5am bid-by-hand sniping war on what ended up being about $400 worth of forty-year-old model cars (I was young and unmarried then), I'm somewhat more inclined to feel that they're worth the $400 than if I had merely coldly calculated the amount. And, hey, the excitement was worth something, too -- which is, I suspect, worth quite a lot to eBay.

The same reason plenty of people think it's worth it to lose money in Vegas, I guess...though in this case you also end up with a tangible reminder of the good time you had winning that auction.

chouyu_31:
2006-06-28T06:00:46Z

As someone who has won a handful of ebay auctions via a paid sniping service, and spent time attempting to bid at a low value, being outbid, bidding again, etc., I find the sniping service to be well worth the minor cost. Why?

Think of an auction as a poker hand in which everyone is bluffing, anyone can raise at any time, but no one knows that everyone is bluffing. If the point is to get the most out of people, then yes, slowly raising the price via small bids works quite well until those who are less sure of themselves leave. However, because the purchaser isn't recieving any additional actual value from the item just because they bid higher, the real desire for the ebay purchaser is never to raise the price at all, but to pick a price higher than anyone else at a particular time to price everyone else out. This can be seen in poker games where the guy who has been conservative all night with his chips suddenly say, "all in".

The same thing applies with auctions. By not bidding until literally the last few seconds, you've got the best poker face of any of the bidders, and you generally win because of it. Now, sniping also allows you to state your true value of the item, without needing to play the bidding war game with someone that has more money and time than you.

None: The problem is with the auction type
2006-06-28T23:54:52Z

SIAM newsletter had something on this maybe a year ago.

The problem is with the auction type, and not psychology. Provably, the best strategy is to wait till t-epsilon and to bid X+epsilon for epsilon as small as possible. (I think this is trivially so.)

There are many better options. One of them would be to limit to give it out to the second best bidder, but forbid bids lower than whatever was bidded so far, for example...

Daniel Lemire
http://www.daniel-lemire.com/

None: Automatic Auction Sniping Negatively Affects Buyers, Sellers & eBay.
2006-07-05T03:25:51Z

A petition to end the effectiveness of automatic auction sniping has been started. Visit http://www.netsend.us/petition to sign it.

Although automatic auction sniping does serve a purpose, its current ability to place bids within the final seconds of an auction negatively impacts buyers, sellers & eBay.

None:
2007-04-09T15:57:21Z

Its true that the question is how you do it. Keep up the good resource. Best greetings to all!