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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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  • Axel Ockenfels
  • Alvin E. Roth

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 992.

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

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  1. 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, American Economic Association, vol. 92(4), pages 1093-1103, September.
  2. Ku, Gillian & Malhotra, Deepak & Murnighan, J. Keith, 2005. "Towards a competitive arousal model of decision-making: A study of auction fever in live and Internet auctions," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 96(2), pages 89-103, March.
  3. Dan Ariely & Axel Ockenfels & Alvin E Roth, 2003. "An Experimental Analysis of Ending Rules in Internet Auctions," Levine's Bibliography 506439000000000433, UCLA Department of Economics.
  4. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521551847.
  5. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers, University of Iowa, Department of Economics 90-01rev, University of Iowa, Department of Economics.
  6. Roth, Alvin E & Murnighan, J Keith & Schoumaker, Francoise, 1988. "The Deadline Effect in Bargaining: Some Experimental Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 806-23, September.
  7. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, American Finance Association, vol. 16(1), pages 8-37, 03.
  8. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "How Effective are Online Reputation Mechanisms?," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2002-25, Max Planck Institute of Economics, Strategic Interaction Group.
  9. 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.
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