In their paper, Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet Alvin Roth and Axel Ockenfels examine the effects of different rules on the ending of second price auctions. While eBay uses a fixed end time for its auctions, Amazon’s system automatically extends an auction beyond its original end time until ten minutes have passed without bid activity. While this difference may seem slight, it has significant effects on bidders’ strategy. Though last-minute bidding, known as “sniping,” is discouraged by both sites, in appears eBay’s rules offer strategic incentives for its users to do just that.

As we learned in class, bidding your true value is a dominant strategy in a second price sealed bid auction. However, in an eBay auction the user also has to consider the time component. When is it most advantageous for a user to place a bid? The authors note that other inexperienced users may confuse eBay for an ascending price auction and continually raise their bids so that they stay on top. In this case, it may be advantageous for other users to refrain from bidding until the final moments in order to avoid a bidding-war. In addition, bidding earlier on could inform other users about your valuation of the item. While the amount is kept private, users are aware of the current second-price and whether they are winning or not. In categories such as antiques, this could cost you an excellent bargin. As a result, in an eBay auction it is not a dominant strategy to bid your true value early on.

The prediction that sniping offer a strategic advantage is confirmed by comparing it to Amazon auctions. Since Amazon will the extend the auction if there is activity close to the end time, the advantages of sniping at the last minute are negated. The data presented in the paper is compelling. A comparison of computer-related auctions on eBay and Amazon showed that 40% of eBay auctions vs. 3% of Amazon auctions have last bids within 5 minutes of closing. Clearly, it is important to consider not only the amount of your bid, but also your timing when determining your best bidding strategy on eBay.