Bidding Strategies in Internet Yankee Auctions
A bidding strategy commonly observed in Internet auctions, though not frequently in live auctions, is that of "jump-bidding," or entering a bid larger than necessary to be a current high bidder. In this paper, we argue that the cost associated with entering on-line bids and the uncertainty concerning bidding competition -- both of which distinguish Internet from live auctions -- can explain this phenomenon. We present a simple theoretical model that accounts for the preceding characteristics, and derive the conditions under which jump-bidding constitutes an equilibrium strategy in a format commonly used for on- line trading, the Yankee Auctionâ. We then present evidence recorded from hundreds of Internet auctions that is consistent with the basic predictions from our model. We find that jump-bidding is more likely earlier in an Internet auction, when jumping has a larger strategic value, and that the incentives to jump bid increase as bidder competition becomes stronger. Several of our results have implications for starting bid and minimum bid increment rules set by Internet auction houses. We also discuss possible means of reducing bidding costs, and evidence that Internet auctioneers are pursuing this goal.
|Date of creation:||02 Jul 1999|
|Date of revision:|
|Note:||Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 33; figures: included|
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- Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
- Avery, Christopher, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 185-210, April.
- Tenorio, Rafael, 1997. "On Strategic Quantity Bidding in Multiple Unit Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 207-17, June.
- McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
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