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Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction

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Author Info
Axel Ockenfels ()
Alvin E. Roth ()

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Abstract

In second price internet auctions with a fixed end time, such as those on eBay, many bidders 'snipe', i.e., they submit their bids in the closing minutes or seconds of an auction. Late bids of this sort are much less frequent in auctions that are automatically extended if a bid is submitted very late, as in auctions conducted on Amazon. We propose a model of second price internet auctions, in which very late bids have a positive probability of not being successfully submitted, and show that sniping in a fixed deadline auction can occur even at equilibrium in auctions with private values, as well as in auctions with uncertain, dependent values. Sniping in fixed-deadline auctions also arises out of equilibrium, as a best reply to incremental bidding. However, the strategic advantages of sniping are eliminated or severely attenuated in auctions that apply the automatic extension rule. The strategic differences in the auction rules are reflected in the field data. There is more sniping on eBay than on Amazon, and this difference grows with experience. We also study the incidence of multiple bidding, and its relation to late bidding. It appears that one substantial cause of late bidding is as a strategic response to incremental bidding.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 992.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_992

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Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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References listed on IDEAS
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  1. Bajari, Patrick & Hortacsu, Ali, 2003. " The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-55, Summer.
  2. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "How Effective are Online Reputation Mechanisms?," Papers on Strategic Interaction 2002-25, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  3. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!]
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  4. John Asker & Brit Grosskopf & C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth & Georg Weizsäcker, 2004. "Teaching Auction Strategy Using Experiments Administered via the Internet," Journal of Economic Education, Helen Dwight Reid Foundation, vol. 35(4), pages 330-342. [Downloadable!]
  5. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March. [Downloadable!] (restricted)
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  6. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2002. "An Experimental Analysis of Ending Rules in Internet Auctions," Papers on Strategic Interaction 2002-47, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
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