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Last minute bidding equilibrium in second price internet auctions

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  • Nicola Dimitri

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    Abstract

    In recent years internet auctions have attracted much attention. This paper discusses a possible explanation for empirical evidence, notably in fixed-end auctions such as eBay, showing a low number of offers early in the auction, with most of the bids concentrated towards the end of the auction. This “last minute bidding” (sniping) phenomenon was first investigated by Roth and Ockenfels (2002). Unlike standard auctions where each offer is processed by the auctioneer, due to system traffic and connection time in eBay close-end auctions very late bids may get lost and left unprocessed by the auction site. Based on this observation, in a simple two-player game theoretic model with private values, we analyze how the possibility that a bid might not be accepted by the system could affect bidders’ strategic decision to offer late. We find that late bidding, with no offer early in the auction, could be a Nash Equilibrium if players’ values for the object on sale are not too different, with the difference depending upon the relevant probabilities for last minute bids to be successfully placed.

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    Bibliographic Info

    Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 001.

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    Date of creation: Dec 2007
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    Handle: RePEc:usi:depfid:001

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    Keywords: eBay auctions; last minute bidding; congestion.;

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    1. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May.
    2. Roth, Alvin & Ockenfels, Axel & Ariely, Dan, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," Scholarly Articles 2579649, Harvard University Department of Economics.
    3. Alvin E. Roth & Axel Ockenfels, . "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," Papers on Strategic Interaction 2002-32, Max Planck Institute of Economics, Strategic Interaction Group.
    4. Patrick Bajari & Ali Horta�su, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
    5. Patrick Bajari & Ali Hortacsu, 2002. "Cyberspace Auctions and Pricing Issues: A Review of Empirical Findings," Working Papers 02005, Stanford University, Department of Economics.
    6. Axel Ockenfels & Alvin E. Roth, 2001. "The Timing of Bids in Internet Auctions: Market Design, Bidder Behavior, and Artificial Agents," Papers on Strategic Interaction 2002-33, Max Planck Institute of Economics, Strategic Interaction Group.
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