Last minute bidding equilibrium in second price internet auctions

Nicola Dimitri (dimitri@unisi.it)

Department of Economic Policy, Finance and Development (DEPFID) University of Siena from Department of Economic Policy, Finance and Development (DEPFID), University of Siena

Abstract: In recent years internet auctions have attracted much attention. This paper discusses a possible explanation for empirical evidence, notably in fixed-end auctions such as eBay, showing a low number of offers early in the auction, with most of the bids concentrated towards the end of the auction. This “last minute bidding” (sniping) phenomenon was first investigated by Roth and Ockenfels (2002). Unlike standard auctions where each offer is processed by the auctioneer, due to system traffic and connection time in eBay close-end auctions very late bids may get lost and left unprocessed by the auction site. Based on this observation, in a simple two-player game theoretic model with private values, we analyze how the possibility that a bid might not be accepted by the system could affect bidders’ strategic decision to offer late. We find that late bidding, with no offer early in the auction, could be a Nash Equilibrium if players’ values for the object on sale are not too different, with the difference depending upon the relevant probabilities for last minute bids to be successfully placed.

Keywords: eBay auctions; last minute bidding; congestion. (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:usi:depfid:001

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