http://www.portaliraq.com/news/Iraq+Museum+International+finds+cheating+on+eBay__1111434.html

This article discusses a “sniper trap” on eBay. The idea is that the seller and a friend attempt to raise the bids on an eBay auction. As the auction is closing, the seller’s friend poses a fairly high bid, thereby triggering the secret bids of genuine bidders. These secret bids are revealed and the seller cancels the fake bid. Now genuine bidders will attempt to outbid the other secret bids. In this way, the seller increases the competing bids. This sniper trap has been successful in generating higher last minute bids.

In class we have discussed various types of auctions. Most of these auctions are fair auctions, and using this assumption we have been able to explore certain rules and trends of auctions. For a fair second price sealed bid auction it has been shown that a bidder should bid his valuation. In eBay, the auction is a variation of the second price sealed bid auction , so people bid up to their true valuation. It seems odd that eBay would allow a seller to participate in his own auction in this way. If the seller is allowed to cancel bids at will, then he has the ability to drive the prize higher by having people place phony bids. If these are outbid then the seller gains, and if not they can simply cancel the bid. It seems that a more fair auction would prevent this participation or at least prevent it in the final hectic moments of bidding.

An interesting question is to see what the bidders should do if they suspect that the seller will employ this technique. Although in a fair auction the bidder should bid his/her valuation, it would be more advantageous to set a secret bid that is lower in this case. In this situation the highest bidder has a lower secret bid. When this bid is revealed, the genuine bidders will attempt to outbid this secret bid. Then the bidder can bid his true valuation and hope that his bid is higher than the price war caused by the unfair bid. This particular technique would most likely not be advantageous if a single bidder employed it. However, if the sniper trap becomes more widely used, more bidders may attempt this technique, thereby shifting the dominant strategy from bidding true valuations to bidding lower secret bids.