
Is Sniping a Problem for Online Auction Markets? [pdf] - nkurz
http://papers.nber.org/tmp/97510-w20942.pdf
======
t0mbstone
The bidding system on online auction sites like ebay has always been a joke.

If an auction ends at a precise date and time, then the only thing bidding
early accomplishes is driving up the price.

If someone wants to get the item for cheap, they should NEVER bid until the
last second.

The whole concept is flawed compared to auctions in real life, which start
with a bid price, and then drive up the price with additional bids. The
auctioneer simply ends the auction when people stop bidding.

The only way to fix the sniping problem is to fix this fundamental issue with
online auctions. They need to make it so that auctions can dynamically end at
any point in time (for example, if the item hasn't been bid on for a set time
window, or if the seller is simply tired of waiting).

Imagine if you wanted to sell an iPhone or something with this type of auction
model. People would place bids up front, and they would have a fast-paced
bidding war (driving up the price), followed by a slower bidding war, as they
started to reach the limits of what they were willing to pay. If nobody topped
the current bid during the following 24 hours, the auction automatically ends,
and the highest bidder wins it. Placing a bid automatically resets the 24 hour
delay (or maybe it resets it to an exponentially smaller time window to keep
people from postposing an auction indefinitely).

I'm imagining a scenario where the person who creates the auction can set the
auction automatic no-bid termination time window, and they could also set a
true deadline (which perhaps only they would be privy to) when the auction
would automatically end.

That is the only way bidding makes sense to me on online auctions. With the
current system that ebay uses, sniping is the only type of auction bidding
that makes sense.

~~~
lotyrin
The online auction with hard bid window is perfectly fine. Rationally,
everyone bids their reserve price immediately at any time during the window.
The current winning bid (just above the second bidder) is displayed so you can
avoid the effort of bidding if your reserve is too low to matter.

I don't really understand the concept of "driving the price up" in online
auctions. It only seems to represent a flawed understanding of cause and
effect (the current price causes the future price) which only makes sense
irrationally with effects such as anchoring or post-hoc rationalization of
purchases.

The price is whatever someone is willing to pay for it, if you lose a purchase
by setting your reserve on the auction system to less than your true reserve -
what you were willing to potentially pay or conversely, if you have won an
auction for more than you would have liked - you have failed to act in your
own best interest, there is not a middle ground between the two.

~~~
SixSigma
While I agree in principle - I now just bid what I think and forget about it -
if I bid $1.00 and you bid $1.02 you will win but really I was prepared to bid
$1.04, so I have to overbid to avoid this margin. And then I'm at the next
price break.

~~~
lotyrin
You could have simply bid 1.25 or whatever your true reserve is in the first
place. If your reserve price changes in the face of the current auction price
you're not acting rationally.

~~~
dragonwriter
> You could have simply bid 1.25 or whatever your true reserve is in the first
> place. If your reserve price changes in the face of the current auction
> price you're not acting rationally.

Well, sure, the rational choice model is a poor model for human behavior in
general that is only even a reasonable approximation when aggregating over
large groups, and even then only in certain kinds of interactions. People not
acting rationally isn't some kind of exceptional failure mode, its the norm.

In relevant particular, the rationality assumes -- falsely -- perfect, zero-
cost knowledge of utilities and opportunity costs. In reality, understanding
of the expected utility and opportunity cost of a transaction is always
imperfect, and the degree to which it approximates perfection is dependent, to
a certain extent, on the effort expended in considering the utilities and
costs, which has its own opportunity cost.

If you modify the rational choice model only enough to accommodate the fact
that certainty of costs and utilities in the real world is dependent on effort
which itself has an opportunity cost it then becomes easy to see how it is as
rational as it is practical to be to _revise_ ones estimate of value of a
potential purchase in light of information that indicates that the safe (and
cheap) estimate used in preparing a bid is not enough to secure a purchase, so
further consideration is needed to determine if it is worth upping that bid or
whether the purchase should be abandoned.

------
mattdw
New Zealand's TradeMe auction site just automatically delays the expiry by 2
minutes every time there's a bid within the last 2 minutes of the auction. The
auction is not over until 2 minutes has passed with no further bids.

------
nkurz
I didn't see it mentioned in the paper, but one of the main advantages for
using a "sniping" service is that you can participate in multiple auctions at
the same time. Assume there are similar 5 items that would meet your need, but
you only want 1 of them. If you "bid and forget", you might end up committing
to purchase 0 to 5 of the items.

But if you create a "bid group" to place last minute bids, as long as the
endings of the auctions are spaced in time by more than the "lead time", you
only have an active bid on one item at a time, and thus will finish with
either 0 or 1 items, a much better outcome.

The "bid and forget" alternative is to only bid on one item at a time, and
then as soon as you lose an auction, you bid on one more. But this requires
that you keep track of when the auction end, remember what the next item is,
and submit the next bid before that next auction ends, which is hardly bid and
forget.

ps. No affiliation, but I've used
[http://auctionsniper.com](http://auctionsniper.com) for some number of years
and would recommend them.

------
matt_morgan
Their answer, by the way, is that 4-18% of people are less likely to return to
the platform as a result of irritation over sniping.

eBay's mechanism for automatically increasing your bid to your reserve as
necessary should alleviate this. For me, it does ... I put in my max bid and
just let it go (years ago, I sniped manually, when I had ntp and a fast
connection and not everybody else did; that was good). But I find that for
people bidding on my auctions, some don't understand the max bid idea (so are
very good sniping targets) and others appear to understand it but still think
they're going to get sniped anyway. I don't know how this could be but I've
had a couple confusing conversations over it with people who offer me lots of
money to end auctions early (and who don't otherwise seem like scammers).

So even though eBay has a way to beat this, regular people don't find it
usable enough, basically. The TradeMe mechanism another commenter mentioned
sounds smart.

