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Sniping in Proxy Auctions with Deadlines

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  • Sofia Moroni

Abstract

In most online auctions with deadlines, bidders submit multiple bids and wait untillate in the auction to submit high bids, a practice popularly known as “sniping.†Thispaper shows that whenever there is a nonzero probability that an auction contains “shillbidders†, who attempt to raise the sale price without winning, equilibrium play mustexhibit sniping. We present a model of online auctions with stochastic bidding opportunitiesand incomplete information regarding competing players’ valuations. We characterizeperfect Bayesian equilibria under a trembling hand refinement, allowing for apositive probability that a player is a bidder who plays a fixed strategy that raises the saleprice. In doing so, we develop a one-shot deviation principle for a class of continuous-timegames with stochastic opportunities to move. We find that in all equilibria, playerswait until a late time threshold to place their bids, even as the probability that a shill bidderis present becomes arbitrarily small. Using data from eBay auctions, we show thatobserved behavior is consistent with equilibrium play and that comparative statics of thetiming of bids match the model’s predictions. In contrast, when there is no possibility ofa shill bidder, the unique equilibrium outcome is that players bid their valuation as soonas a bidding opportunity arrives. The results extend to other types of heuristic bidderswho place incremental bids.

Suggested Citation

  • Sofia Moroni, 2016. "Sniping in Proxy Auctions with Deadlines," Working Paper 5875, Department of Economics, University of Pittsburgh.
  • Handle: RePEc:pit:wpaper:5875
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    File URL: https://www.econ.pitt.edu/sites/default/files/working_papers/WP16-015.pdf
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    References listed on IDEAS

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    1. Sofia Moroni, 2015. "Existence of trembling hand equilibrium in revision games with imperfect information," Working Paper 5874, Department of Economics, University of Pittsburgh.
    2. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series 992, CESifo Group Munich.
    3. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 890-907, Winter.
    4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, February.
    5. Matthew Backus & Tom Blake & Dimitriy V. Masterov & Steven Tadelis, 2015. "Is Sniping A Problem For Online Auction Markets?," NBER Working Papers 20942, National Bureau of Economic Research, Inc.
    6. 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.
    7. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
    8. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2003. "An Experimental Analysis of Ending Rules in Internet Auctions," CESifo Working Paper Series 987, CESifo Group Munich.
    9. Lovo , Stefano & Tomala , Tristan, 2015. "Markov Perfect Equilibria in Stochastic Revision Games," HEC Research Papers Series 1093, HEC Paris.
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    Cited by:

    1. Sofia Moroni, 2020. "Existence of Trembling hand perfect and sequential equilibrium in Stochastic Games," Working Paper 6837, Department of Economics, University of Pittsburgh.

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