Economics at your fingertips  

Bidding Strategies in Internet Yankee Auctions

Robert F. Easley and Rafael Tenorio
Additional contact information
Robert F. Easley: University of Notre Dame
Rafael Tenorio: Northwestern University

Microeconomics from EconWPA

Abstract: A bidding strategy commonly observed in Internet auctions, though not frequently in live auctions, is that of "jump-bidding," or entering a bid larger than necessary to be a current high bidder. In this paper, we argue that the cost associated with entering on-line bids and the uncertainty concerning bidding competition -- both of which distinguish Internet from live auctions -- can explain this phenomenon. We present a simple theoretical model that accounts for the preceding characteristics, and derive the conditions under which jump-bidding constitutes an equilibrium strategy in a format commonly used for on- line trading, the Yankee Auctionâ. We then present evidence recorded from hundreds of Internet auctions that is consistent with the basic predictions from our model. We find that jump-bidding is more likely earlier in an Internet auction, when jumping has a larger strategic value, and that the incentives to jump bid increase as bidder competition becomes stronger. Several of our results have implications for starting bid and minimum bid increment rules set by Internet auction houses. We also discuss possible means of reducing bidding costs, and evidence that Internet auctioneers are pursuing this goal.

Keywords: internet auctions; bidding costs; jump bidding (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 1999-07-02
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 33; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Microeconomics from EconWPA
Series data maintained by EconWPA ().

Page updated 2017-09-29
Handle: RePEc:wpa:wuwpmi:9907001