Paper About Ebay

BIDDING BEHAVIOR IN EBAY AUCTIONS

1. Introduction Auctions on the internet provide a new source of data on how bidding is influenced by the behaviors of bidders. Many bidders on eBay, one of the most popular online auction sites, employ different bidding strategies that involve proxy (automatic) bids and last-minute bids (also called “sniping”). This paper discusses whether and how these bidding strategies affect the auction price. It will first focus on characteristics and effects of proxy bids, which is later followed by sniping.

2. Proxy (automatic) bids When placing a bid, eBay asks the bidder to submit the maximum amount of money he is willing to pay for a product. This maximum price entered by the bidder is then used by the system to bid for him by proxy automatically. That is, once the bidder has submitted his maximum price early in the auction (called a proxy bid), the price will not be shown immediately to other bidders, but the new bid will be booked as the minimum increase above the former high bid1. For instance, if a bidder submits his maximum price of €50 to an auction that is currently at 5€, the resulting bid will be 6€. However, the system will reserve the auctioned product for this bidder up to €50 automatically. So if another bidder enters 10€, the system will automatically bid 11€ for the former bidder. At the end of the auction, the bidder who submitted the highest bid wins the product at the lowest possible price of one increment above the second highest bid. So a proxy bid does not directly affect the end price of an auction, it only determines whether the bidder wins the auction or not. If a bidder submits his maximum willingness to pay, he will win the auction if and only if his bid is the highest bid entered, so there is no need to over- or understate the maximum price to enter.

3. Last-minute bids (sniping) Unlike Amazon, all eBay auctions use an English format auction system with a fixed end time and date set by the seller. That...