Subject:
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Why sniping hurts, and why with proxy bidding people still snipe
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Newsgroups:
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lugnet.market.theory
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Date:
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Wed, 17 May 2000 21:56:25 GMT
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Viewed:
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513 times
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With proxy bidding, sopposely you set the maximum price you want to bid, then
stick to it. You should never engage in a bidding war personally -- If
somebody bids lower than your maximum bid, the system will raise your bid
automatically; If somebody bids higher than your maximum bid, you should let
him get the item. Either way it is clear-cut. Sniping is not an issue --
Whether you get outbid three days or three seconds before the auction ends
should make no difference in the final result.
Really? No, it is not that simple.
Not all snipers are alike. Some behaves as described by Larry Pieniazek in
<http://www.lugnet.com/market/theory/?n=845>. Some people put auctions in
their watch list first, and only submit their bids in the last day.
Furthermore, thesedays some people use software to snipe for them -- They set
up their maximum price beforehand, and the software will submit their bids at
the final moment.
Snipers of the last kind actually act just like the normal proxy bidders --
It's just that they use the software running on their own personal computers,
instead of the one on the ebay server, as the proxy. So I don't think
the "ethical" issue, as described by Larry, applies to this kind of snipers.
The most obvious benefit of sniping is to postpone the bidder's commitment
until the last moment. However, some people also think that sniping helps to
reduce the price. Is this true?
How do you decide your maximum bid? To me, there are two factors: (1) How much
is the item's value in my heart? (2) Aside from this auction, can I get the
same item from somewhere else? If so, how much?
Look at the following senario: There is a discontinued Lego set. Every one or
two months, somebody will put one of this set out for auction on ebay. You
really can pay $100 for this set. In the current auction, most bidders have
their bids under $30, but here is this guy, who wants this set as bad as you,
and now you have bid against each others, raising the price to $70. Should you
continue raising your bid?
What happens if, one or two months from now, another one of this set pops up
for auction? If you let the other guy win the current auction, next time
hopefully he will not bid against you, and if everybody else still bids under
$30, you may end up getting this set at a very reasonable price.
Yes, there are lots of "if"s, but that is my point: Even if you have a clear
idea on the factor (1), there are still lots of speculations involved in
deciding the factor (2), so setting your maximum bid is never a clear-cut task.
And this is why some sellers set a low starting price in order to lure more
bidders. And this is why you engage in bidding wars -- A rational bidder keeps
adjusting his maximum bid in a bidding war, not because he believes in "only 5
dollars more", but because increasingly he feels that the item is popular, and
his chance in the next auction will not be better than in the current one.
And this is why sniping hurts: If everybody snipes, using the automatic
software maybe, then the auction essentially turns into a sealed bid auction.
Until the last moment, you don't have an idea on how much everybody else is
bidding, or even how many bidders there are. Unlike in a sealed bid auction,
the sale price is not the highest bid, but the 2nd highest bid plus delta.
Since the bidders lack the information in the bidding process, the resulting
price will fluctuate more. Because of the lack of information and the
resulting price fluctuation, collectively the bidders will bid more
cautiously, and the prices will drop.
So sniping hurts. But sniping can happen only in auctions with a hard
deadline. Since ebay is such a high-volume auction site, it is understandable
that they don't want an auction to stay on their list forever. However, I
think they can improve their service by providing the limited extension as an
option. For example, after 5 days into the auction, the auction gets into the
going-1, going-2 mode, in which each bids will extend the auction for one more
day. However, there is also a 10-day hard deadline that keeps the auction from
being listed forever.
Until ebay provides such a service, the sellers can achieve the same results
by hand. For example, if you also think that sniping is hurting your prices,
you can put the following notice in your ebay auction description:
"W A R N I N G - THIS AUCTION MAY END EARLY. Although this is listed as a 10-
day auction, the auction will advance after the 5th day. If there are no more
bids in the going-1 and the going-2 stages, the seller will terminate the
auction early and sell the item to the highest bidder." (Excuse my wording,
since English is not my mother tongue.)
Later the seller can add "going-1", "going-2", etc., into the auction
description, to create a sence of urgency.
By threatening to terminate the auctions early, the seller urges everybody to
bid early, and hopefully restore some of the balance.
Cheers,
Hao-yang Wang
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