Academic journal article Journal of Electronic Commerce Research

Disarming the Bid Sniper

Academic journal article Journal of Electronic Commerce Research

Disarming the Bid Sniper

Article excerpt

ABSTRACT

Bid sniping is the most common strategy used in online auctions whereby the bidder places a bid in the closing seconds in order to win the auction. This denies other bidders the time to react and suppresses the final price. While bid sniping is beneficial to the winner, it disadvantages other bidders and the seller does not get the full amount of revenue s/he might otherwise have received in a truly competitive and fair auction. This paper proposes a method to help negate bid sniping as a dominant strategy for winning in online auctions. We propose an amendment to the auction format that allows for a random undisclosed time-out extension should new bids be received in the closing moments. This entices bidders to bid their true valuation up front, otherwise they risk having the auction terminate and therefore not accept any new bids. Several variations of the amended auction format are presented that effectively counteract bid snipers by making it difficult to gain any information by observing the underlying algorithm. To ensure the auction does not continue indefinitely, the format includes mechanisms that place random bounds on the size of, and number of extensions permitted. Our proposal also makes intelligent decisions to maximize the price for the seller based on the auction's bid volume. The size of the extension granted is based on the timing and aggressiveness of how bids are being submitted. To our knowledge, no existing online auctioneers offer such a comprehensive format for actively discouraging bid sniping.

Keywords: Online auctions, e-commerce, software bidding agents, sealed bid auction, proxy bids

1. Introduction

Online auctions are a highly successful mechanism to trade items from the comfort of one's own home. However, the move towards an automated marketplace has resulted in changes to the auctioning structure that has many undesirable consequences. The majority of online auctions terminate at a preset expiration time. This characteristic allows bidders to engage in a dubious bidding practice referred to as bid sniping (see [Bapna 2003, Wenyan and Alvaro 2008, Leonardo and Ruy 2009, Shah et al. 2002, Trevathan et al. 2011]).

Bid sniping is an act by which a bidder submits a bid in the closing moments of an auction. The goal is to deny competing bidders the time to react. The bid sniper hopes that his/her bid will win the auction for the minimal amount needed. This is in contrast to regular bidders that bid competitively throughout the auction. By deferring bidding until the auction's end, the bid sniper will minimize the risk of being outbid and having to engage in a rally with other bidders, which inevitably pushes the price upwards [Elay and Hossain 2009].

While bid sniping is not illegal, its use is discouraged by the major online auction vendors. Instead, eBay1 recommends that a bidder should only place a single bid at his/her maximum valuation using the proxy bidding system (i.e., submit the maximum amount and have the system automatically outbid rivals until the maximum is exceeded) [Engelberg and Williams 2009]. Despite this recommendation, bid sniping is rampant, and is now considered as a natural part of the online auctioning experience. In fact, economists and business analysts advise that bid sniping is the best and most common strategy to use (see [Roth and Ockenfels 2002, Shah et al. 2002, Vergano 2006]).

Some bidders have now even resorted to using software bidding agents to gain a competitive advantage. A software bidding agent is a program that bids on a human bidder's behalf (see [Dumas et al. 2002, Gjerstad and Dickhaut 1998, Rust et al. 1992, Trevathan and Read 2008]). In the ideal (and intended) sense, the user enters a maximum s/he is willing to pay. The agent will incrementally outbid competitors up to the maximum price. This saves a human the effort of constantly having to monitor an auction for bidding activity (as some auctions can last for days). …

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