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COS 444 Internet Auctions: Theory and Practice

COS 444 Internet Auctions: Theory and Practice. Spring 2008 Ken Steiglitz ken@cs.princeton.edu. Some details of eBay’s Algorithm. Normal case (assume tick = $1) : $20 ......... high bid 12 ……… minimum allowable bid 11 ……… posted (will be paid)

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COS 444 Internet Auctions: Theory and Practice

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  1. COS 444 Internet Auctions:Theory and Practice Spring 2008 Ken Steiglitz ken@cs.princeton.edu

  2. Some details of eBay’s Algorithm • Normal case (assume tick = $1) : $20 ......... high bid 12 ……… minimum allowable bid 11 ……… posted (will be paid) 10 ……… second-highest bid

  3. Some details of eBay’s Algorithm • Suppose next bid is $19.90 : $21 ......... minimum allowable bid 20 ……… high bid (posted, paid) 19.90 .... second-highest bid

  4. Some details of eBay’s Algorithm • Suppose next bid is, instead, $20.10 : $21.10 …. minimum allowable bid 20.10 …. high bid (posted, paid) 20 ……… second-highest bid If now high bidder raises her bid to $21.10 or higher, her posted price --- which she would pay, goes up! This is basis of a law suit

  5. Theory A slick way to derive equilibrium: use value space We assume a 1-1 bidding function b(v) . Then if bidder 1 bids b(z), the equilibrium condition is that surplus be maximized when z = v1 . This corresponds to bidding b(v1 ) .

  6. Field Experiment “ Public Versus Secret Reserve Prices in eBay Auctions: Results from a Pokémon Field Experiment,” R. Katkar & D. Lucking-Reiley, 1 December 5, 2000. “We find that secret reserve prices make us worse off as sellers, by reducing the probability of the auction resulting in a sale, deterring serious bidders from entering the auction, and lowering the expected transaction price of the auction. We also present evidence that some sellers choose to use secret reserve prices for reasons other than increasing their expected auction prices.”

  7. Field Experiment… Katkar & L-R 00 • 50 matched pairs of Pokémon cards • 30% book value, open & secret reserve • Open reserve increased prob. sale: 72% vs. 52% • Open reserve yielded 8.5% more revenue • Caution: these are low-priced items! • What are possible pros of secret reserve? • Evidence of illicit transactions around eBay

  8. Theory • Here’s a different kind of auction: High bidder wins the item All bidders pay their bids! … the All-Pay Auction Models political campaigning, lobbying, bribery, evolution of offensive weapons like antlers,… etc. What’s your intuiton? How do you bid? Is this better or worse for the seller than first-price? Second-price?

  9. Theory: all-pay auction • Start with E[surplus] = pr[1 wins][ v1] – b ( v1 ) … equilibrium

  10. Praxis: Reasons to snipe • Avoids bidding wars • Avoids revealing expert information (if you are an expert) • Avoids being shadowed • Possibly conceals your interest entirely • Ockenfels & Roth (2006) suggest implicit collusion (prisoner’s dilemma) Nonstrategic: • Avoids early commitment

  11. Praxis: Reasons to bid early • Scaring away competition • Raising one’s own bid even scarier • Impatience, anxiety, pride • Rasmusen (2006) suggest cost of discovery leads to a collusive equilibrium • Allows you to sleep, eat, etc. (But sniping services and software solve this problem.)

  12. Praxis: Field studies of early and late bidding • Roth & Ockenfels papers • eBay, Amazon, and Yahoo rules (Yahoo now out of the auction business) Open Problem: How can a sellerencourage early bidding?

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