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Bidding Strategies in Internet Yankee Auctions

Author

Listed:
  • Robert F. Easley

    (University of Notre Dame)

  • Rafael Tenorio

    (Northwestern University)

Abstract

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.

Suggested Citation

  • Robert F. Easley & Rafael Tenorio, 1999. "Bidding Strategies in Internet Yankee Auctions," Microeconomics 9907001, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:9907001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 33; figures: included
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    File URL: http://econwpa.repec.org/eps/mic/papers/9907/9907001.pdf
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    References listed on IDEAS

    as
    1. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
    2. Christopher Avery, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 185-210.
    3. 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.
    4. Tenorio, Rafael, 1997. "On Strategic Quantity Bidding in Multiple Unit Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 207-217, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Katkar Rama & Reiley David H, 2007. "Public versus Secret Reserve Prices in eBay Auctions: Results from a Pokémon Field Experiment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(2), pages 1-25, January.
    2. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
    3. Rama Katkar & David Lucking-Reiley, 2000. "Public Versus Secret Reserve Prices in eBay Auctions: Results of Pok�mon Field Experiment," Vanderbilt University Department of Economics Working Papers 0026, Vanderbilt University Department of Economics.

    More about this item

    Keywords

    internet auctions; bidding costs; jump bidding;

    JEL classification:

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

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