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Bidding Strategies and the Internet Auction: Bid Late or Pay Great!

Bidding Strategies and the Internet Auction: Bid Late or Pay Great!. Karl W. Einolf, Ph.D. Mount Saint Mary’s College. Thank you. Mount Saint Mary’s College Summer Grant April Parreco, research assistant. Our Agenda. Bidding Strategies in Auctions Understanding the eBay.com Auction

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Bidding Strategies and the Internet Auction: Bid Late or Pay Great!

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  1. Bidding Strategies and the Internet Auction:Bid Late or Pay Great! Karl W. Einolf, Ph.D. Mount Saint Mary’s College

  2. Thank you • Mount Saint Mary’s College Summer Grant • April Parreco, research assistant

  3. Our Agenda • Bidding Strategies in Auctions • Understanding the eBay.com Auction • Recent Research • Einolf’s Research • Theoretical Bidding Strategies on eBay.com • Empirical results

  4. Understanding Auctions • Open Outcry vs. Sealed Bid • First Price vs. Second Price • Common Value vs. Private Value • Widely available vs. Scarce

  5. Bidding Strategies: Open Outcry • Always a “Second Price” Auction • Common Value: Bid to your desired profit • Private Value: Bid to your value • Scarcity: Learning occurs! You may update your desired profit or your private value • Avoid “Jumping” the bid – use the increment!

  6. Bidding Strategies: First Price / Sealed Bid “Shade” your bid Big shade Little Shade Greater profit Lower profit Lower chance to win Increase chance to win

  7. Bidding Strategies: Second Price / Sealed Bid Vickrey’s Truth Serum: Bid your value

  8. The Market 42.5 million registered users • 2000 $5 billion in product transferred • 2001 $9.3 billion in product transferred YearRevenue (Mil) 1997 $41 1998 $86 1999 $225 2000 $431 2001 $749

  9. The Auction • eBay auctions have a fixed ending time • A hybrid of open outcry and second price / sealed bid Go to eBay.com web site…

  10. The Auction Bid at the end to avoid shill bidding… • November 8, 2001 (USA Today) “Online auctions top list of Internet fraud…” • March 8, 2001 (U.S. Department of Justice Press Release) “Three men indicted for eBay shill bidding ring…” • June 8, 2000 (AP) “FBI investigates bidding on eBay…”

  11. Recent Research • Roth and Ockenfels (2000) • Compare eBay.com with Yahoo.com • Kauffman and Wood (2001) • Examine optimal selling strategies • Bajari and Hortacsu (2001) • Examine optimal bid entry (not timing) We need a theory and empirical analysis of bidding across a wide class of goods.

  12. A theory of bidding across a wide class of goods Private values No alternate market (scarce) Bid timing is important: Bid at the end! Common value Many markets (widely available) Bid timing is NOT important!

  13. 1 Cumulative Probability of Winning Bid 0 Bid value CV=$200 $200 Profit 0 Expected Profit Optimal Bid A theory of bidding across a wide class of goods Common value Many markets (widely available) Bid timing is NOT important!

  14. A theory of bidding across a wide class of goods Private values No alternate market (scarce) Bid timing is important: Bid at the end! Common value Many markets (widely available) Bid timing is NOT important!

  15. Empirical Results Data Private values No alternate market (scarce) Common value Many markets (widely available) Signed Longaberger Baskets 100 Auctions 1,174 bids Bidding at the end? Longaberger Baskets 100 Auctions 1,167 bids Consumer Electronics 100 Auctions 1,460 bids Bidding any time?

  16. High visibility early: Low price and new listing High visibility late: Auctions ending soon are listed first

  17. What determines whether someone bids in the last five minutes? Logit analysis - Dependent variable is Less5 Independent variables ONEBID EXPERIENCE DAYTIME WEEKEND LONGABERGER SIGNED LONG (Hypothesis: all will increase the likelihood of a bid in the final five minutes)

  18. What determines whether someone bids in the last five minutes? Independent variables ONEBID 1.6 times LESS likely EXPERIENCE not significant DAYTIME 1.7 times more likely WEEKEND not significant LONGABERGER 1.5 times more likely than CE SIGNED LONG 1.8 times more likely than CE Logit analysis - Dependent variable is Less5 Model is significant

  19. Bidding Strategies of Last Minute Bidders

  20. How expensive is not bidding at the end? % of winners average that overpaid% overpaid Consumer Electronics 10% 8.5% Longaberger Baskets 15% 15.4% Signed Longabergers 5% 20.1%

  21. When in Doubt…Bid Late or Pay Great! Questions and Comments?

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