Ebay Sniping, can my maximum bid beat a last minute snipe attempt?

[WHAMPOM]

Bid late, bid the amount you are comfortable with, and do not bid on vehicles you cannot inspect before-hand.

 

[KKR]

Originally posted by: halik

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

Well for once people don't bid their maximum or think they can overbid you by a slight amount. If I beat your bid by 50 cents, odds are ill go back and try to beat you by a slight amount.

The entire premise that people always bid their absolute maximum is flawed - otherwise you'd only see one bid of a unique used per auction. That simply isn't the case.

Case point, check out one my recent auctions here
If the winner would just snipe in the end, the second highest wouldn't get a chance to retort bit by bit

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

 

[Pacfanweb]

Originally posted by: KKR

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

And that's exactly what snipers do, except they do it as the last minute. Just because you're WILLING to pay 5 dollars for something doesn't mean you wouldn't like to get it for 3 dollars instead.
Lots of folks bid only what it take to be in the lead.....and they are the ones who lose to snipers all day, every day. If the sniper didn't come in at the last minute, they risk being bumped up to or near their maximum bid. And again, just because you have a max. you'll pay for something, that doesn't mean you wouldn't like to get it cheaper. Bidding early is a great way to pay more for everything.

 

[KKR]

Originally posted by: Pacfanweb

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

But if I wanted that stick of butter, and the current bid with a minute to go was 3 dollars, why not wait until the last few seconds to place that 5 dollar max? That way, the other person, who might not be using the proxy feature, can't come back and either bump me up to my max or even outbid me.
Saving money is why you snipe. You have to assume the rest of the bidders are stupid and will get competitive if you outbid them.....and that's a safe assumption since we've all seen it thousands of times. It either makes you pay more for an item or even loses it for you.
Sniping is final. You either win it at your max price or less, or you don't win. But there's no getting bumped up, either.

I'll address the second case first: if the opposing party bid over $5, you should be happy to lose the auction since you value your money more than you value the stick of butter.

Last minute bidding wars don't make sense either, from an economics perspective. By underbidding, each party is risking losing the item to the opposite party at a price below his or her true value (thus running a substantial utility deficit). Expected utility can be maximized by placing a single bid at one's value, thus guaranteeing a surplus in most cases and indifference in a single case (where one pays exactly the maximum bid).

 

[Pacfanweb]

Originally posted by: KKR

I'll address the second case first: if the opposing party bid over $5, you should be happy to lose the auction since you value your money more than you value the stick of butter.

Last minute bidding wars don't make sense either, from an economics perspective. By underbidding, each party is risking losing the item to the opposite party at a price below his or her true value (thus running a substantial utility deficit). Expected utility can be maximized by placing a single bid at one's value, thus guaranteeing a surplus in most cases and indifference in a single case (where one pays exactly the maximum bid).

You are trying to apply logic to a place it doesn't belong. I can't tell you how many auctions I won right at the end, beating out someone who simply bid just enough to be the high bidder.
I got them for the next bid increment, rather than simply inputting my max bid a day early and giving that person a chance to come back and bump me up to whatever their max was.

Sniping ends all that. People are not rational, and they get competitive when it comes to Ebay bidding. They get that email saying they've been outbid, and immediately go to the auction and many times bid again a time or two to see if they can get the high bid just slightly over their previous max. All that does is cost me money. If I put that same max in at the last second, they don't get the chance to bump me.
So by sniping, you eliminate the last-minute bidding war.

Sniping works, and it saves many people lots of money. Whether you think it makes sense or not, it doesn't change the facts. That's just the way it is.

 

[chuckywang]

Originally posted by: Special K

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

I would guess that many bidders do not know the true maximum they would pay for the item when they place their first bid. I've seen auctions where a used item ends up selling for more than what a new one would cost. I'm guessing people just get emotional about it and keep telling themselves "It's only 5 more dollars" or however much they keep incrementing their bid by to try and win the item.

Human emotions do not play a part in Nash equilibrium. In theory, KKR is quite right in his reasoning. However, in reality, we know that people put in "feeler" bids just to see what other people bid.

 

[Pacfanweb]

Originally posted by: chuckywang

Originally posted by: Special K

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

I would guess that many bidders do not know the true maximum they would pay for the item when they place their first bid. I've seen auctions where a used item ends up selling for more than what a new one would cost. I'm guessing people just get emotional about it and keep telling themselves "It's only 5 more dollars" or however much they keep incrementing their bid by to try and win the item.

Human emotions do not play a part in Nash equilibrium. In theory, KKR is quite right in his reasoning. However, in reality, we know that people put in "feeler" bids just to see what other people bid.

Exactly. Therefore, the Nash equilibrium does not apply to Ebay. Snipers will almost always beat you, and not pay their max while doing so.

 

[DrPizza]

Originally posted by: KKR

Originally posted by: halik

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

Well for once people don't bid their maximum or think they can overbid you by a slight amount. If I beat your bid by 50 cents, odds are ill go back and try to beat you by a slight amount.

The entire premise that people always bid their absolute maximum is flawed - otherwise you'd only see one bid of a unique used per auction. That simply isn't the case.

Case point, check out one my recent auctions here
If the winner would just snipe in the end, the second highest wouldn't get a chance to retort bit by bit

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

You've oversimplified it too much. For one thing, a rational bidder doesn't assume that all other bidders are rational. Another flaw is this statement: "you risk losing the good for a price below your true value." You're overlooking "the reward is that you may get the good for a price far below your true value." The latter is particularly true when an item is relatively common. Supply and demand fluctuate on a daily basis, thus if you try during several auctions, you very well may walk away with a great deal, rather than merely getting it for what you're willing to pay for it or slightly less.

Auctions are games. There are 3 players: the seller/auctioneer, the buyer, and the other bidders. It's a fun game, particularly at a live auction. In fact, I find it to be a very fun game. At a real auction, I'll bid on things that I don't want, just to drive the price up on things that other people do want. People whose wallets have been drained are often more reluctant to bid on things that they didn't absolutely "need" in the auction that *I* want to get for a good price. i.e. they're most interested in items A, B, and C. Later during the auction, if they got A, B, and C for great prices, they they're far more likely to bid on things that they don't really want/need that are going for a great price.

I absolutely love it when supply exceeds demand for some type of item that there are quite a few lots of at an auction. I'll drive prices up early, then once demand has been met, I'll purchase the remaining supply for pennies on the dollar. The reason I'm able to drive prices up is that I know there are people there who think like you, and think their bidding strategy is rational: bid up to what you think the item is worth to you. If I can figure out what that amount is, I win. It's a game.

edit: KKR, if you follow your strategy, you'll get the item for what you're willing to pay. However, if you follow the opposite strategy as outlined by the people here, you'll still win those auctions where the final price is less than or equal to what you're willing to pay. However, over the long run, you'll end up paying less money with the other strategy than with your "rational" strategy. What's rational about spending more money for the same items?

 

[halik]

Originally posted by: Pacfanweb

Originally posted by: chuckywang

Originally posted by: Special K

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

I would guess that many bidders do not know the true maximum they would pay for the item when they place their first bid. I've seen auctions where a used item ends up selling for more than what a new one would cost. I'm guessing people just get emotional about it and keep telling themselves "It's only 5 more dollars" or however much they keep incrementing their bid by to try and win the item.

Human emotions do not play a part in Nash equilibrium. In theory, KKR is quite right in his reasoning. However, in reality, we know that people put in "feeler" bids just to see what other people bid.

Exactly. Therefore, the Nash equilibrium does not apply to Ebay. Snipers will almost always beat you, and not pay their max while doing so.

There's no standing equlibirum, since people employ different strategies for bidding (ergo this debate)... if people behaved all the same way, you could have a dominant strategy knowing the other people's strategy.

The reason why I mention Nash is to illustrate the idea of non-static outcomes - your bids will influence other people's actions. Saying that bidding your max is the best way to win is analogous to ignoring game theory a la Adam Smith.

 

[KKR]

Originally posted by: Pacfanweb

Originally posted by: KKR

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

And that's exactly what snipers do, except they do it as the last minute. Just because you're WILLING to pay 5 dollars for something doesn't mean you wouldn't like to get it for 3 dollars instead.
Lots of folks bid only what it take to be in the lead.....and they are the ones who lose to snipers all day, every day. If the sniper didn't come in at the last minute, they risk being bumped up to or near their maximum bid. And again, just because you have a max. you'll pay for something, that doesn't mean you wouldn't like to get it cheaper. Bidding early is a great way to pay more for everything.

Yes, you might get the item for cheaper, but underbidding also leaves you susceptible to sniping. I'll use a simple example to show how expected utility can be maximized through rational bidding:

Your value of the stick of butter is $5 (you can justify paying $5 since it is ultra deluxe butter).

Case 1: Current bid is just below $3. You bid $3 and win the auction. Gain utility surplus of $2. Alternatively, you could lose the auction at a bid just above $3, thus foregoing $2 of utility surplus you could have gained by bidding $3.01. Assuming a 50% chance of each, expected utility is 0.

Case 2: Again, current bid is just below $3. You bid $5, your true value. Sniper comes and bids $4. You win the auction at just above $4 and gain utility of just below $1 with absolute certainty.

Since Case 2 is always at least as rewarding as Case 1 and is sometimes (most of the time) more rewarding, it is the optimal strategy to pursue (Pareto dominant).

Thus, the cases where sniping works are those cases in which the person on the other end is irrational (and more than likely a little stupid).

 

[KKR]

Originally posted by: DrPizza

Originally posted by: KKR

Originally posted by: halik

Originally posted by: KKR

Originally posted by: halik

Originally posted by: Pacfanweb

Originally posted by: Baked
Put down the max amount you wanna pay and walk away. Sniping only jacks up the price, it doesn't win you the item. The only way somebody can find out the max bid is by going over your max bid.

Dead wrong.

Sincerely,

Thousands of snipers including myself that have won auctions in the last few seconds...saving lots of cash by not giving anyone a chance to come back and bump our bid up.

Ding ding ding .... this is exactly why Nash got a Nobel prize in economics. People always assume static games, even though in reality the other players respond to your actions.

Nash equilibrium does not apply in a Dutch auction setting.

Are you saying that one's value of a good increases with the number of bids? If the absolute maximum you were willing to pay for a stick of butter were $5 and somebody bid $5.01, would you raise your bid to $5.02, given the chance?

If one truly valued the stick of butter at $5, why would he pay a price that exceeded his true value? The idea behind a Dutch auction is that you bid your true value initially and pay a price that is equal to or less than that true value. Thus, time should not be an issue.

Well for once people don't bid their maximum or think they can overbid you by a slight amount. If I beat your bid by 50 cents, odds are ill go back and try to beat you by a slight amount.

The entire premise that people always bid their absolute maximum is flawed - otherwise you'd only see one bid of a unique used per auction. That simply isn't the case.

Case point, check out one my recent auctions here
If the winner would just snipe in the end, the second highest wouldn't get a chance to retort bit by bit

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

You've oversimplified it too much. For one thing, a rational bidder doesn't assume that all other bidders are rational. Another flaw is this statement: "you risk losing the good for a price below your true value." You're overlooking "the reward is that you may get the good for a price far below your true value." The latter is particularly true when an item is relatively common. Supply and demand fluctuate on a daily basis, thus if you try during several auctions, you very well may walk away with a great deal, rather than merely getting it for what you're willing to pay for it or slightly less.

Auctions are games. There are 3 players: the seller/auctioneer, the buyer, and the other bidders. It's a fun game, particularly at a live auction. In fact, I find it to be a very fun game. At a real auction, I'll bid on things that I don't want, just to drive the price up on things that other people do want. People whose wallets have been drained are often more reluctant to bid on things that they didn't absolutely "need" in the auction that *I* want to get for a good price. i.e. they're most interested in items A, B, and C. Later during the auction, if they got A, B, and C for great prices, they they're far more likely to bid on things that they don't really want/need that are going for a great price.

I absolutely love it when supply exceeds demand for some type of item that there are quite a few lots of at an auction. I'll drive prices up early, then once demand has been met, I'll purchase the remaining supply for pennies on the dollar. The reason I'm able to drive prices up is that I know there are people there who think like you, and think their bidding strategy is rational: bid up to what you think the item is worth to you. If I can figure out what that amount is, I win. It's a game.

edit: KKR, if you follow your strategy, you'll get the item for what you're willing to pay. However, if you follow the opposite strategy as outlined by the people here, you'll still win those auctions where the final price is less than or equal to what you're willing to pay. However, over the long run, you'll end up paying less money with the other strategy than with your "rational" strategy. What's rational about spending more money for the same items?

I account for both sides of the risk in the example above.

I'm not quite following your argument when you say you "win" if you know my value. If you win at a price above my value, I'm not really losing. Furthermore, if the price you bid is in fact above your own value, you are actually the one losing.

Regarding your edit, ebay is not a first price auction. If I bid $5 for an item, I do not actually pay $5 unless someone else bids $4.99. The theoretically optimal strategy ensures that you pay a price less than your value except in the single case when someone bids just below your value, in which case you pay exactly your value.

 

[DrPizza]

Originally posted by: KKR

Originally posted by: Pacfanweb

Originally posted by: KKR

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

And that's exactly what snipers do, except they do it as the last minute. Just because you're WILLING to pay 5 dollars for something doesn't mean you wouldn't like to get it for 3 dollars instead.
Lots of folks bid only what it take to be in the lead.....and they are the ones who lose to snipers all day, every day. If the sniper didn't come in at the last minute, they risk being bumped up to or near their maximum bid. And again, just because you have a max. you'll pay for something, that doesn't mean you wouldn't like to get it cheaper. Bidding early is a great way to pay more for everything.

Yes, you might get the item for cheaper, but underbidding also leaves you susceptible to sniping. I'll use a simple example to show how expected utility can be maximized through rational bidding:

Your value of the stick of butter is $5 (you can justify paying $5 since it is ultra deluxe butter).

Case 1: Current bid is just below $3. You bid $3 and win the auction. Gain utility surplus of $2. Alternatively, you could lose the auction at a bid just above $3, thus foregoing $2 of utility surplus you could have gained by bidding $3.01. Assuming a 50% chance of each, expected utility is 0.

Case 2: Again, current bid is just below $3. You bid $5, your true value. Sniper comes and bids $4. You win the auction at just above $4 and gain utility of just below $1 with absolute certainty.

Since Case 2 is always at least as rewarding as Case 1 and is sometimes (most of the time) more rewarding, it is the optimal strategy to pursue (Pareto dominant).

Thus, the cases where sniping works are those cases in which the person on the other end is irrational (and more than likely a little stupid).

KKR, what you're forgetting is supply and demand! Case 1 continued:
Tomorrow, the current bid is just below $3. You bid $3 and win the auction because the guy who outbid you today doesn't need one any more.

 

[Mermaidman]

KKR,
Lets say you're willing to pay $5 maximum. An early $5 bid may get less favorable result than a last second $5 bid
because the early bid will prompt the other bidder to drive up the price. (In eBay auctions)

 

[KKR]

Originally posted by: DrPizza

Originally posted by: KKR

Originally posted by: Pacfanweb

Originally posted by: KKR

That is an irrational bidding strategy.

In a first price auction, there is incentive to underbid in order to ensure a utility surplus from the transaction. However, there is no reason in a second-price auction to bid anything but your true value. In a second-price auction, your margin of victory makes no difference: regardless of whether you win by 50 cents or if you win by $50, you end up paying the same price for the good. By bidding less than your true value, you risk losing the good for a price below your true value. Thus, a rational bidder will always bid exactly his value in a Dutch auction.

And that's exactly what snipers do, except they do it as the last minute. Just because you're WILLING to pay 5 dollars for something doesn't mean you wouldn't like to get it for 3 dollars instead.
Lots of folks bid only what it take to be in the lead.....and they are the ones who lose to snipers all day, every day. If the sniper didn't come in at the last minute, they risk being bumped up to or near their maximum bid. And again, just because you have a max. you'll pay for something, that doesn't mean you wouldn't like to get it cheaper. Bidding early is a great way to pay more for everything.

Yes, you might get the item for cheaper, but underbidding also leaves you susceptible to sniping. I'll use a simple example to show how expected utility can be maximized through rational bidding:

Your value of the stick of butter is $5 (you can justify paying $5 since it is ultra deluxe butter).

Case 1: Current bid is just below $3. You bid $3 and win the auction. Gain utility surplus of $2. Alternatively, you could lose the auction at a bid just above $3, thus foregoing $2 of utility surplus you could have gained by bidding $3.01. Assuming a 50% chance of each, expected utility is 0.

Case 2: Again, current bid is just below $3. You bid $5, your true value. Sniper comes and bids $4. You win the auction at just above $4 and gain utility of just below $1 with absolute certainty.

Since Case 2 is always at least as rewarding as Case 1 and is sometimes (most of the time) more rewarding, it is the optimal strategy to pursue (Pareto dominant).

Thus, the cases where sniping works are those cases in which the person on the other end is irrational (and more than likely a little stupid).

KKR, what you're forgetting is supply and demand! Case 1 continued:
Tomorrow, the current bid is just below $3. You bid $3 and win the auction because the guy who outbid you today doesn't need one any more.

Ok, but that is exactly the same result you would obtain if you bid $5, no? You would still win the good at just below $3, regardless of whether you bid $3, $5, or $50. My point is, bidding your true value is a dominant strategy since it is always at least as good as the one you are advocating and better in some cases.

Perhaps I am not understanding your supply/demand argument. Can you elaborate on why you try to inflate prices in your previous example, if not simply to make things harder for those people who actually want the item?

 

[jagec]

Originally posted by: KKR

Thus, the cases where sniping works are those cases in which the person on the other end is irrational (and more than likely a little stupid).

exactly.

Turns out there are a lot of them on ebay.

Like you said, it doesn't make sense to ever bid less than your "true value". However, due to the irrationality of the other bidders (who often start below their true value and can go quite far above it if they get into a foolish bidding war), it makes sense to bid that true value at the very end of the auction so that the irrational people pay the penalty for being irrational.