At 08:22 AM 5/2/01 -0600, Robert Feldman wrote:
>Flooding can be blocked if you take advantage of proxy bidding. Just decide
>what your _maximum_ bid is, and enter that amount (near the end of the
>auction, if you want, but not at the last second). Your actual bid will only
>be the minimum increment above the next highest actual bid (and not
>necessarily what you are willing to go up to).
-snip-
And at 07:51 AM 5/2/01 -0700, Marvin wrote:
>The short answer is yes. The DNF (Discuss Newest Features) board has a
>sniping contest at 22:22:22 PDT Ebay time and the highest I've seen is 39
>posts in that one second. And to say again, sniping only works against
>bidders who either do not know or are not willing to bid what an item might
>be worth. I think that "stategy" you are talking about is just ignorance of
>the system.
Sigh. You guys are taking the position of lots of economists when
discussing real-world markets, saying that the theory supports
the well-behavedness of the market and neglecting the fact
that the assumptions that were necessary to prove the theory
do not apply to the real problem. In the auction institution
that eBay uses, which is technically a demand-side bidding,
raise-only, interactive auction with sealed bid caps and
fixed increments, for the clearing price to reflect the actual
market price you need many assumptions, not the least
important of which is something called "rational bidding
behavior". That means that the buyers have done their
homework, examined their costs and benefits and determined
an optimal strategy (i.e., a "maximum price" in the case
of single lot auctions as in most of eBay auctions) that they
are willing to pay. However, it takes only _one_ irrational
buyer to bias the clearing price by the minimum price
increment, and it takes only _two_ irrational buyers to
transform the auction into a game whose payoff (or rather,
whose negative payoff) will be bounded only by how stupid
the buyers are.
Bidding contests are proof of irrational behavior in eBay
and it happens all the time. There is a definite psychological
component that fuels the escalation of the price: "I want
to win even if it makes no sense financially". There is
an inherent time dimension in the problem because when
people lose the high bidder position they convince themselves
to bid even more although they had decided on a max price earlier.
Because of this time dimension, the longer the price stays high,
the likelier it is to go up further. It is simple psychology,
and undoubtedly irrational. But that's how it is, and there
is nothing that you, as a buyer, can do to change the behavior
of such bidders. However, you can mitigate to some extent the
effect that such buyers have on the clearing price by bidding late
in the auction, giving them less time to convince themselves
to raise their bids. Thus sniping is born. Sniping is a
sensible strategy in an eBay auction with irrational bidders.
It has the effect of transforming the auction institution
into something of a sealed bid auction, which can really mitigate
the effects of irrational bidding. Furthermore, because
irrational bidding tends to be specific to a particular auction
(it doesn't necessarily carry over to set the price of
subsequent auctions, because of the "bidder remorse" issue),
repeated auctions will tend to stabilize closer to the fair
market value.
The fact that sniping is a standard mechanism used by lots
of buyers on eBay just proves what everyone doing
experimental economics has observed again and again:
if there is one way to game the system, it will be found,
and, once it is found, the strategy will spread and become
commonplace.
At our group, we have used experimental economics tools to
analyze the behavior of open energy markets. We have tried
almost every auction institution (first accepted offer,
first rejected offer, discriminatory, Vickrey, variants of these,
you name it). Even though the experiments are carefully
setup to prove or disprove a given hypothesis, we are always
amazed by the range of unexpected, highly creative
behaviors that we had not thought of. If you care to
read about our group's work, here's our web site
http://www.pserc.wisc.edu/
and our web-based experimental economics market simulator
http://www.pserc.cornell.edu/powerweb/
Carlos.
--------------------------------------------------------------
Carlos E. Murillo-Sanchez carlos_murillo_at_nospammers.ieee.org
Received on Thu May 03 2001 - 08:10:05 BST