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Shills and snipes

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  • Bose, Subir
  • Daripa, Arup

Abstract

Online auctions with a fixed end-time often experience a sharp increase in bidding towards the end (“sniping”) despite using a proxy-bidding format. We provide a novel explanation of this phenomenon under private values. We show that it is closely related to shill bidding by the seller. Late-bidding by buyers arises not to snipe each other, but to snipe the shill bids. We allow the number of bidders in the auction to be random and model a continuous bid arrival process. We show the existence of late-bidding equilibrium. Next, we characterize all equilibria under a natural monotonicity condition and show that they all involve sniping with positive probability. We characterize the time at which such late bidding occurs and discuss welfare implications.

Suggested Citation

  • Bose, Subir & Daripa, Arup, 2017. "Shills and snipes," Games and Economic Behavior, Elsevier, vol. 104(C), pages 507-516.
  • Handle: RePEc:eee:gamebe:v:104:y:2017:i:c:p:507-516
    DOI: 10.1016/j.geb.2017.05.010
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    References listed on IDEAS

    as
    1. Kosmopoulou, Georgia & De Silva, Dakshina G., 2007. "The effect of shill bidding upon prices: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 291-313, April.
    2. Lamy, Laurent, 2009. "The Shill Bidding Effect versus the Linkage Principle," Journal of Economic Theory, Elsevier, vol. 144(1), pages 390-413, January.
    3. Indranil Chakraborty & Georgia Kosmopoulou, 2004. "Auctions with shill bidding," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(2), pages 271-287, August.
    4. 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.
    5. Engelberg, Joseph & Williams, Jared, 2009. "eBay's proxy bidding: A license to shill," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 509-526, October.
    6. Ladislav Wintr, 2008. "Some Evidence On Late Bidding In Ebay Auctions," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 369-379, July.
    7. 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 329-355, Summer.
    8. 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.
    9. Rasmusen Eric Bennett, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-22, November.
    10. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    11. Graham, Daniel A. & Marshall, Robert C. & Richard, Jean-Francois, 1990. "Phantom bidding against heterogeneous bidders," Economics Letters, Elsevier, vol. 32(1), pages 13-17, January.
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    More about this item

    Keywords

    Online auctions; Correlated private values; Last-minute bidding; Sniping; Shill bidding; Random bidder arrival; Continuous bid time; Continuous bid arrival process;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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