As learned in class, eBay functions as a second-price sealed-bid auction where bidders submit bids, and the “winner” pays the second highest bidder’s value. In such an auction, the bidder’s dominant strategy is to bid his or her true value—how much the item is worth to him or her. The underlying logic is that if the bid deviates from the bidder’s value—either higher or lower—the bidder will pay more than the object is worth (to him or her) or irrationally lose the auction, respectively. Using this logic, the bidder seemingly should bid his value early on and let the auction pan out thereafter. However, many eBay practices, particularly effective multiple bidding and late bidding, defy second-price logic. Sharad Borle, Peter Boatwright, and Joseph Kadane of Statistical Science explain how the seemingly counterintuitive tactics are often successful, effectively winning the auction below the bidders’ values.

To confirm the high incidence of multiple bidding and late bidding, data were from August 2001 to February 2002 across 27 products in 15 consumer product categories. The variables of the study were those relevant to multiple bidding and late bidding, namely the level of individual participants (i.e. experience) and individual’s bid timing. Level of experience was determined using eBay’s quantified feedback system. Ultimately, the authors discovered that experienced bidders were more likely to be active in bidding towards the end. In juxtaposing the final winning price (achieved by a late bidder) against the market value of a good, they concluded that a vast majority of “late winners” realized great deals. The studies also proved that experienced bidders did not engage more heavily in multiple bidding, but rather were more likely to bid once. In fact, the study proved such statistically significant results that the authors concluded that eBay as a whole deviates from regular second-price sealed-bid auctions solely because of these two additional strategic bidding behaviors.

The study merely claimed that there was a high incidence of late bidding and multiple bidding on eBay but failed to explain such behaviors. I would posit that eBay hosts such a variety of bidders with varying degrees of experience that bids are often not in line with the object’s value. Furthermore, the majority of eBay’s auctions span multiple days; thus, the nature of the auctions themselves differs from standard second-price sealed-bid auctions in that bidders are not constantly bidding. As a result, as many bidders’ likely have busy schedules, late bidding accommodates that. Finally, multiple bidding is probably a result of bidders’ changing perceived value of the object throughout the auction.

Borle, Sharad. “The Timing of Bid Placement and Extent of Multiple Bidding: An Empirical Investigation Using eBay Online Auctions.” Statistical Science 21.2(2006) 194-205. 05 MAR 2008 <http://projecteuclid.org/DPubS/Repository/1.0/Disseminate?handle=euclid.ss/1154979821&view=body&content-type=pdfview_1>.