On eBay, there is a bidding strategy called “sniping”. Sniping is the practice of entering a bid immediately — often on the order of seconds — before an auction ends, leaving no time for anyone else to enter a competing bid.
The theoretical advantage is that one may enter a bid that is lower than the maximum one might eventually enter, without letting other bidders know that there is competition for the item.
eBay has a “proxy bidding” system, by which the system automatically increments one’s bid so that it beats the other bidders but goes no higher. For example, if the highest bid for an item is $100, and a bidder enters a bid of $200, it will only register as $100.01. If a subsequent bid for $110 is entered, then the bidder who bid $200 will automatically be registered for a $110.01 bid.
My consideration of the problem space finds only two rational motivations for sniping, the first of which has a complete non-sniping solution, and the second of which may only be solved by sniping.
- Being outbid by “just a little bit”
You bid $100 on something, and a sniper wins the auction for $101. You think to yourself “Arg! I totally would have bid $102 if I had the chance!”. The solution to this is of course to bid the maximum price that you would pay for the item, allowing the eBay automatic proxy system to increase your bid for you as appropriate, and leaving you with absolutely no regret if you lose the bid to a higher bidder.
The problem with this solution is that the maximum price that you would pay is not always clear. Indeed, one could argue that for essentially 100% of auctions, this is the case. If you would pay $2 for something, why not $2.01? If you would pay $20,000 for something, why not $20,000.01? But one thing is for certain: It is preferable to make the maximum bid decision when under no time pressure. Therefore, regardless of any uncertainty about what the maximum price is, this decision should not be made in the last few minutes or seconds of an auction.
The process for determining this “no regret” price is always going to be personal and involve emotions. Here is a system one could use: Ask yourself, at what price would I in fact feel that I am paying too much for this item? If $100 is acceptable, and $100-$115 is definitely a gray area– what about $150? No way. What about $140? Ehhh…. no. What about $130? Man, that is too much, but I guess I’d rather get this item now than keep searching for it next week. But I sure will be pissed at the bastard who pushed me up there. Bingo! We have our bidding price! Hopefully the price will not go up that high, but if it does, we will have no regrets.
Of course, one could argue that the solution I propose prioritizes avoiding regret over maximizing value. But I would further argue that an emotionally mature person’s feelings of regret should be directly tied into a time/cost/value equation :-)
- An item’s perceived value is affected by its highest bid and its number of bids
Here, the bidder is concerned that placing a bid on an item will influence other bidders’ perception of how valuable the item is. If one would like to pay as little as possible for an item, independent of the maximum price one is willing to pay, then sniping is the only solution. However, if a bidder is not concerned with getting the item for as little as possible, then the perceived-value dimension can be completely ignored, and a maximum bid can be determined as described above.
It seems like the chances of getting sniped are pretty high for most items that get any bids. Doesn’t that mean that, by putting in your max price, the likelihood is great that either you’ll pay it, or you won’t win?
The likelihood of a particular bid affecting the perceived value of an item varies wildly from auction to auction.
If your bid does not affect the perceived value, then bidding your maximum no-regret price at any time has no negative consequences.
And even if it does affect the perceived value, as long as your own perceived value does not change, you will of course not ever pay more for an item then you want to. Of course, you might pay more than you could have, or you might lose an auction when you otherwise might not have.
So, the system is very, very heavily weighted toward encouraging sniping on most non-commodity auctions.
yeah - I have, um, sniped before, and it works pretty well. Bidding your no-regret price may not have negative consequences for you when considered in isolation, but it has positive consequences for the seller, doesn’t it? If all the bidders where snipers, you gotta believe the average closing price would drop, no? So, by bidding your no-regret price, you join a team of bidders who work to raise the closing price, right? As a buyer, isn’t that negative? I know that others (probably including you) have applied a fair amount of analytical rigor on this subject, and I certainly haven’t, but it sure seems that way to me.
Josh–
In case I’m not being clear: I agree that sniping is basically always the best strategy. :)
And further, eBay may be better off if it somehow designed the system to discourage sniping. Because as you said, it lowers the closing price, and they benefit from higher closing prices (at least, when they take a cut. maybe they also benefit from lower closing prices because it makes the concept of auctions on eBay more popular).
But somehow I still feel like we’d all be better off with less sniping. It could probably be tamed a bit with some simple rules, like no more than 1 bid per minute.
I’m a sniper I admit it… My strategy is ususally to feel out where the bidding currently lies with a product… so I will bid it up until the current bidder is replace by me. I then watch to see if they come back in an outbid me. If they do, that sends the signal to me that they are trying to get the item for a lesser price and want to play the back and forth bidding game.
I will then periodically watch the item for other bidders and I set my no regret price on my snipe software (I use Gixen to do mine - there’s a review on my site) If I’m lucky I will win the item and in most cases this strategy has been pretty successful for me.
It helps me figure out whether the current bidders are experienced snipers… It helps me figure out if the price is going to be above what I believe I am willing to pay and it helps me set my no regret price..
Also keep in mind shipping. I always add shipping to the bid when figuring my no regret price and if the seller doesn’t tell me what it is I will always ask.