Jump Bidding Strategies in Internet Auctions
AbstractAbidding strategy commonly observed in Internet auctions is that of "jump bidding," or entering a bid larger than what is necessary to be a currently winning bidder. In this paper, we argue that the cost associated with entering online bids and the uncertainty about future entry---both of which distinguish Internet from live auctions---can explain this behavior. We present a simple theoretical model that includes the preceding characteristics, and derive the conditions under which jump bidding arises in a format commonly used for online trading, the ascending-price auction. We also present evidence, recorded from hundreds of Internet auctions, that is consistent with some of the basic predictions from our model. We find that jump bidding is more likely earlier in an auction, when jumping has a larger strategic value, and that the incentives to jump bid increase as competition increases. Our results also indicate that jump bidding is effective: Jump bidders place fewer bids overall, and increased early jump bidding deters entry later in the auction. We also discuss possible means of reducing bidding costs and evidence that Internet auctioneers are pursuing this goal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 50 (2004)
Issue (Month): 10 (October)
auction theory; bidding costs; jump bidding; online auctions;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bulow, Jeremy I. & Klemperer, Paul, 2009.
"Why Do Sellers (Usually) Prefer Auctions?,"
CEPR Discussion Papers
7411, C.E.P.R. Discussion Papers.
- Paul Klemperer & Jeremy Bulow, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Series Working Papers 2009-W05, University of Oxford, Department of Economics.
- Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
- Alok Gupta & Stephen Parente & Pallab Sanyal, 2012. "Competitive bidding for health insurance contracts: lessons from the online HMO auctions," International Journal of Health Care Finance and Economics, Springer, vol. 12(4), pages 303-322, December.
- Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2011.
"Jumping and sniping at the silents: Does it matter for charities?,"
Journal of Public Economics,
Elsevier, vol. 95(5), pages 395-402.
- Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2011. "Jumping and sniping at the silents: Does it matter for charities?," Journal of Public Economics, Elsevier, vol. 95(5-6), pages 395-402, June.
- Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2010.
"Buy-It-Now prices in eBay Auctions - The Field in the Lab,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
294, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2009. "Buy-it-Now Prices in eBay Auctions-The Field in the Lab," Cahiers de recherche 0950, CIRPEE.
- Khoroshilov, Yuri, 2012. "Preemptive bidding in takeover auctions with affiliated values," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 395-401.
- Dodonova, Anna, 2013. "Preemptive bidding in takeover auctions with externality," Journal of Economics and Business, Elsevier, vol. 69(C), pages 35-44.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.