Is Sniping a Problem for Online Auction Markets? [pdf]
papers.nber.org
papers.nber.org
If an auction ends at a precise date and time, then the only thing bidding early accomplishes is driving up the price.
If someone wants to get the item for cheap, they should NEVER bid until the last second.
The whole concept is flawed compared to auctions in real life, which start with a bid price, and then drive up the price with additional bids. The auctioneer simply ends the auction when people stop bidding.
The only way to fix the sniping problem is to fix this fundamental issue with online auctions. They need to make it so that auctions can dynamically end at any point in time (for example, if the item hasn't been bid on for a set time window, or if the seller is simply tired of waiting).
Imagine if you wanted to sell an iPhone or something with this type of auction model. People would place bids up front, and they would have a fast-paced bidding war (driving up the price), followed by a slower bidding war, as they started to reach the limits of what they were willing to pay. If nobody topped the current bid during the following 24 hours, the auction automatically ends, and the highest bidder wins it. Placing a bid automatically resets the 24 hour delay (or maybe it resets it to an exponentially smaller time window to keep people from postposing an auction indefinitely).
I'm imagining a scenario where the person who creates the auction can set the auction automatic no-bid termination time window, and they could also set a true deadline (which perhaps only they would be privy to) when the auction would automatically end.
That is the only way bidding makes sense to me on online auctions. With the current system that ebay uses, sniping is the only type of auction bidding that makes sense.
I don't really understand the concept of "driving the price up" in online auctions. It only seems to represent a flawed understanding of cause and effect (the current price causes the future price) which only makes sense irrationally with effects such as anchoring or post-hoc rationalization of purchases.
The price is whatever someone is willing to pay for it, if you lose a purchase by setting your reserve on the auction system to less than your true reserve - what you were willing to potentially pay or conversely, if you have won an auction for more than you would have liked - you have failed to act in your own best interest, there is not a middle ground between the two.
Well, sure, the rational choice model is a poor model for human behavior in general that is only even a reasonable approximation when aggregating over large groups, and even then only in certain kinds of interactions. People not acting rationally isn't some kind of exceptional failure mode, its the norm.
In relevant particular, the rationality assumes -- falsely -- perfect, zero-cost knowledge of utilities and opportunity costs. In reality, understanding of the expected utility and opportunity cost of a transaction is always imperfect, and the degree to which it approximates perfection is dependent, to a certain extent, on the effort expended in considering the utilities and costs, which has its own opportunity cost.
If you modify the rational choice model only enough to accommodate the fact that certainty of costs and utilities in the real world is dependent on effort which itself has an opportunity cost it then becomes easy to see how it is as rational as it is practical to be to revise ones estimate of value of a potential purchase in light of information that indicates that the safe (and cheap) estimate used in preparing a bid is not enough to secure a purchase, so further consideration is needed to determine if it is worth upping that bid or whether the purchase should be abandoned.
The pain of losing affects your rationality.
A few tens of milliseconds of jitter in stock market processing would also limit some of the problems that high frequency trading causes.
But if you create a "bid group" to place last minute bids, as long as the endings of the auctions are spaced in time by more than the "lead time", you only have an active bid on one item at a time, and thus will finish with either 0 or 1 items, a much better outcome.
The "bid and forget" alternative is to only bid on one item at a time, and then as soon as you lose an auction, you bid on one more. But this requires that you keep track of when the auction end, remember what the next item is, and submit the next bid before that next auction ends, which is hardly bid and forget.
ps. No affiliation, but I've used http://auctionsniper.com for some number of years and would recommend them.
eBay's mechanism for automatically increasing your bid to your reserve as necessary should alleviate this. For me, it does ... I put in my max bid and just let it go (years ago, I sniped manually, when I had ntp and a fast connection and not everybody else did; that was good). But I find that for people bidding on my auctions, some don't understand the max bid idea (so are very good sniping targets) and others appear to understand it but still think they're going to get sniped anyway. I don't know how this could be but I've had a couple confusing conversations over it with people who offer me lots of money to end auctions early (and who don't otherwise seem like scammers).
So even though eBay has a way to beat this, regular people don't find it usable enough, basically. The TradeMe mechanism another commenter mentioned sounds smart.