Via kottke, Clusterflock gives five simple rules for effective bidding on eBay:
Step One:Find the product you want.
Step Two:
Save the product to your watch list.
Step Three:
Wait.
Step Four:
Just before the item ends, enter the maximum amount you are willing to pay for the item.
Step Five:
Click submit.
This is called sniping. That’s a pejorative label for what is actually a sensible and perfectly straightforward way to bid. eBay is essentially an open second-price auction and sniping is a way to submit a “sealed” bid. It’s a popular strategy and advocated by many eBay “experts.” But does it really pay off?
Tanjim Hossain and I did an experiment (ungated version.) We compared sniping to another straightforward strategy we call squatting. As the name suggests, squatting means bidding your value on an object at the very first opportunity, essentially staking a claim on that object. We bid on DVDs and randomly divided auctions into two groups, sniping on the auctions in the first group and squatting on the other.
The two strategies were almost indistinguishable in terms of their payoff. But for an interesting reason. A lot of eBay bidders use a strategy of incremental bidding. That’s where you act as if you are involved in an ascending auction (like an English auction) and you bid the minimum amount needed to become the high biddder. Once you are the high bidder you stop there and wait to see if you are outbid, then you raise your bid again. You do this until either you win or the price goes above the maximum amount you are willing to pay.
Against incremental bidders, sniping has a benefit and a cost (relative to squatting.) You benefit when incremental bidders stop at a price below their value. You swoop in at the end, the incremental bidders have no time to respond, and you win at the low price.
The cost has to do with competition across auctions for similar objects. If I squat on auction A and you are sniping in auction B, our opponents think there is one fewer competitor in auction B and more opponents enter auction B than A. This tends to raise the price in your auction relative to mine. In other words, squatting scares opponents away, sniping does not.
We found that these two effects almost exactly canceled each other out for auctions of DVDs. We expect that this would be true for similar objects that are homogeneous and sold in many simultaneous auctions. So the next time you are bidding in such an auction, don’t think too hard and just bid your value.
Now, I am still trying to figure out what I am going to do with all these copies of 50 First Dates we won in the experiment.
33 comments
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December 9, 2009 at 1:14 am
K
Naive question: Isn’t an english auction isomorphic to a 2nd price bid auction —> so it wouldn’t really matter if other people bid like it is an English auction or a 2nd price bid auction…?
March 18, 2014 at 5:56 pm
Banggi
What is the second best autcion site to sell on?I hate ebay as i have had nothing but problems as of late with scammers and the ebay customer service just sucks. Does anyone out there know of any other good autcion sites to sell items on. I have been told bidville is up and coming but after looking into thier site clearley they are no feebay.
December 9, 2009 at 2:53 am
DVD?
What to do with these DVDs? Put them back on eBay for sale.
December 9, 2009 at 6:45 am
Ross Parker
Isn’t it patently obvious that sniping cannot offer a sustained advantage?The time at which bids are made is an utter red herring.
December 11, 2009 at 1:42 am
brad
in a homogenous environment sniping yields little. another experiment would be to shoot lowball offers at an item for 6 months at the market in question. The main problem with squatting is that you can not raise the bid without a competitor. sniping is more effective in cost control, as it allows catching the occasional cheap item while disengaging from impulsive bidding. in heterogenous markets squatting could easily bring attention to the item (a 30s masterbilt epiphone acoustic guitar i got cheaply comes to mind) if it is rare, in collectibles markets for rare items you get more volatile in pricing, complexity and information/opinion differences allow opportunities, most often from collective “attention deficit” for a “stink bid” strategy sniping makes intuitive sense. hard to control for complex markets though.
December 11, 2009 at 3:37 pm
David Zetland
You and K are ignoring the fact that 99% of eBayers are NOT economists with any sort of optimal strategy. I’ve watched MANY of my experimental participants use incremental bidding, when they are GIVEN demand schedules. Amazingly, they often bid x (< y = value) and NOT got anything when the price goes to 0.5 y or less!
December 9, 2009 at 7:59 am
New York OA Trader | Shared Items From Around The Web – December 9, 2009
[…] Sniping and Squatting […]
December 9, 2009 at 9:13 am
Ebay: scherpschieten of kraken | eco.nomie.nl
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December 9, 2009 at 10:18 am
Taylor
Sniping or not, decide on your absolute max bid, and bid 1 time.
Sniping is a convenience for people who want to avoid drawing unwanted attention to an item, and emotional bidding that usually comes with it.
December 9, 2009 at 4:02 pm
a
“Now, I am still trying to figure out what I am going to do with all these copies of 50 First Dates we won in the experiment.”
Run another experiment, this time selling these DVDs under two different regimes.
December 10, 2009 at 1:01 pm
Squatting, Sniping, Bidding | Ken Nelson
[…] wondered if sniping or squatting worked better on EBay. When you snipe, you don’t bid until the last seconds. Squatting, conversely, has you bid […]
December 10, 2009 at 2:15 pm
Matt
I think that in at least many of the cases of those who seem to be engaged in “incremental bidding” what is happening is unsuccessful squatting. That is, they put in what they _hope_ will be their maximum bid, but when out-bid, they decided that they can actually pay more. Perhaps it’s the attachment to the item that’s developed from the hope of wining it. Perhaps their wife says, “can’t we bid just a bit more?*” or perhaps it’s something else, but in at least many cases, I suspect they _intended_ to engage in “squatting” but only ended up engaging in incremental bidding.
*I make no claims about how I might know about this possibility.
December 10, 2009 at 2:50 pm
Nathan Richardson
There’s a time cost involved here, too. To snipe, you have to be able to put in a bid near the ending time of the auction. This doesn’t matter so much on DVDs, where you can count on an auction ending at almost any time, but it might matter for rarer items.
Squatting also has a disadvantage in terms of time – you have to wait for the auction to end. If there is a lot of time left in the auction, this is a problem, especially if you end up not getting the item anyway. That time is just a deadweight loss. If you snipe, you are more likely to get the item and it will be shipped more quickly. Even if you don’t win, you can just immediately snipe another item.
The tentative lesson might be to snipe on common items and squat on rare ones.
December 11, 2009 at 3:38 pm
David Zetland
I’d say the opposite. Rare items will attract bidders willing to pay, with no alternatives.
December 10, 2009 at 3:02 pm
Equilibrium on EBay
[…] current high bidder by $1 just before the deadline. It turns out that it doesn’t matter. Both EBay strategies get you to the same winning bid. The two strategies were almost indistinguishable in terms of their […]
December 10, 2009 at 3:48 pm
Stephen Williams
Markets in everything look at this http://www.esnipe.com/ it does your sniping for you (at a price).
December 10, 2009 at 4:26 pm
Michael Giberson
Ken Steiglitz’s book, Snipers Shills & Sharks: eBay and Human Behavior discusses these and related issues.
December 10, 2009 at 8:40 pm
Shane M
the concern with bidding early, for me at least, involves what may be shill bidding, or the kind of bidder who can often bid you up and see your max bid in the process. Note: you can tell someone’s max bid when ebay bids a strange or uneven increment above your last bid. It’s because you’ve encountered a max bid. Early bidding puts me at a disadvantage by creating “tells”.
With sniping I bid my high price once right before the end of the auction and it’s good or not good.
In my totally unscientific experience sniping is more satisfying bidding experience because I tend to win at a price I want to pay. If I bid early I tend to lose at that same price. Maybe it’s the stuff I bid on, but I’ve bid on alot of stuff early and it just doesn’t “work” for me like sniping does.
Also, how often have you bid early on an item only to see another item get listed that you wished you could bid on instead (often a buy-it-now that would be totally acceptable)?
December 10, 2009 at 9:17 pm
Tom West
Indeed, sniping and squatting are likely only equivalent if everyone involved is homo economus rather than human beings. I argued with my wife about this until it became empirically obvious that she was right – sniping works.
Sniping (at least for the goods that she was looking at) worked far better than declaring one’s intentions up front. People did not bid their maximum price up front (or more accurately, their maximum price went up once they had had the highest bid for a while (endowment effect?)).
Likewise, sniping was a way of ensuring that you didn’t get caught by the endowment effect. You only got one chance to bid, so you could never had a chance to increase your bid your first price was insufficient.
In the face of irrational actors, irrational action works!
December 11, 2009 at 3:39 pm
David Zetland
totally agree.
December 11, 2009 at 1:49 pm
SheetWise
DVD’s is not a good experiment — I can buy 50 First Dates anytime I want at WalMart.
I bid on vintage archery equipment — not exactly one-of-a-kind, but rare and hard to find. The auctions frequently finish at around $1,000.
There are a lot of other collectors. The more time they have to consider their bid, the higher the perceived value of the auction. If they know other collectors value the auction more than they do, they rethink their previous valuation. I will frequently place an $800 bid in the final seconds on an item that, up to the last minute, is priced at $150 — and I frequently lose, with a dozen or more bidders coming in at the end.
December 11, 2009 at 3:42 pm
David Zetland
After reading these comments, I’d also add that sellers PREFER sniping b/c a gradual increase in price draws more people in, and these people are more likely to bid, to win, even when that bid exceeds their ex-ante WTP (which they would bid with a squatting scenario).
That’s why I start my auctions (http://tinyurl.com/y9evvtf) at $0.99. The highest sale recently was for $70+
Given this, I’d use a squatter strategy as a buyer.
December 11, 2009 at 6:25 pm
Anonymous
For what it’s worth, what you describe here isn’t sniping as the word is generally used in reference to ebay. Typically, sniping programs are set to up the current bid by the lowest increment with 1-2 seconds left.
December 11, 2009 at 8:28 pm
jeff
ebay is a second-price auction. so if the current bid is $x and I submit a bid of $y>x at the last second, then i win at a price of $(x+i) where i is the lowest increment. it doesn’t matter what y is as long as it is larger than x.
December 12, 2009 at 5:37 pm
John Doe
If the proposed explanation makes sense than a hybrid algorithm of putting the minimum bid as a stake and then snipe with the WTP seems to outperform both sniping and squatting.
December 13, 2009 at 11:42 pm
Eric Rasmusene
Hi. Nice idea. My paper, which you cite as working paper, is published now, as:
“Strategic Implications of Uncertainty over One’s Own Private Value in Auctions,” in the BE Press journal, Advances in Theoretical Economics, Vol. 6: No. 1, Article 7 (2006). http://www.bepress.com/bejte/advances/vol6/iss1/art7. Bidders have to decide whether and when to incur the cost of estimating their own values in auctions. This can explain sniping– flurries of bids late in auctions with deadlines– as the result of bidders trying to avoid stimulating other bidders into examining their bid ceiling more carefully. In ascii-latex and pdf ( http://www.rasmusen.org/published/rasmusen-06-bepress-auction.pdf).
December 14, 2009 at 6:03 pm
Nathanael Nerode
But a lot of these comments are horribly silly.
The only reason to take *any* strategy other than squatting is if you actually don’t *know* what your true maximum bid, the true value to you, is. If your true bid is based on other people’s bids, you have to screw around. If it isn’t, there is no point to it.
I routinely “squat” and discover a dozen people who “sniped” at the last minute, but I still win the auction because my max bid was higher than theirs all along. Or, I lose the auction and am happy because they paid more than I was ever willing to…..
With essentially unique items, as long as you can actually afford your max bid, there is no reason not to bid it immediately. *Only* with multiple identical auctions should you ever consider another strategy, assuming you *know* what your max bid is. But this study shows that squatting works better when there are multiple identical auctions, too. So squatting is *always correct* unless you don’t *know* how much the item is worth to you. If you don’t know how much it’s worth to you, don’t bid, you’re gonna get rooked.
January 9, 2010 at 12:10 am
Biweekly Links – 01/08/2010 « God, Your Book Is Great !!
[…] see why so many people bid in it. Just in case you are interested in some strategies to use , check here . (Although I guess sniping does not really applicable here).Lest you misunderstand the title of […]
March 3, 2010 at 9:29 pm
» The Effectiveness of eBay Sniping » Cornell Info 2040 - Networks
[…] Sniping and Squatting Posted in Topics: Education These icons link to social bookmarking sites where readers can […]
October 30, 2010 at 5:43 am
turkchat
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