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Discussion Starter · #1 · (Edited)
Executive summary: set the highest amount you will want to pay at the beginning of the auction, as this is your best strategy in most situations.
Edit: if you believe there are little to no players involved, sniping is likely to produce a lower overall final price, as they tend to be non-maximizing bids.
If the final price is competitive or expected with multiple players, you should bid your highest outright. With competitive fixed prices, incrementers are not likely to bid up the price to the maximum until the very end because they see the same item for a cheaper bid elsewhere. So your main opponent is the potential max sniper, who only knows the current second highest bid. Though, the competitive price is already known to all before the auction even begins, so bid outright.


I was just explaining to a friend about bidding on eBay, after seeing how he is glued to the screen and bidding up the price every time someone outbids him. This is a no-no! So, I would like to share the following.

If I may intrude on your eBay buying strategy, and many if not most of you already know this so forgive my lecture-style post, but I suggest you set your reservation price or maximum amount equal to your first (and only) bid. eBay is an adjusted second price auction, with a minimum interval amount between bids (depends on the current bid price). This means that you only pay the second highest bid. If the second bid is equal to the first bid at the end of the auction, the first bidder wins.

If you only incrementally increase your bid, and someone else has put down an amount equal to or just below your reservation price, you will HAVE to pay more than your reservation price when you could have just paid BELOW your reservation price if the reservation price was set at the beginning!

To summarize, at the end of the auction when you have set the reservation price from the beginning:

If someone bids above your reservation price, then you lose out on the product, but you value the money at the current bid price more (so technically you don't lose out).

If someone bids equal to or below your reservation price, then you only pay the second highest bid (if the second highest is equal to your bid, then you pay exactly your reservation price). e.g. If your reservation price is equal to $100 and someone bids $90, you only pay $90. If the next person bids $100, you pay $100 and win the auction because it's first come first serve.

The irrational strategy that comes to play is that one will bid up the price at the end beyond one's reservation price. In other words, the money you just spent is valued elsewhere (even if it means just sitting in your bank account). The important lesson to draw from this all too common scenario is to set and value your reservation price of the item beforehand. You will regret spending more than what you want or could afford. If you have no limit and thus the watch you are bidding for is price inelastic for you, then set the eBay auction amount as high as you want - but, this is seldom the case. We usually go to auctions to find deals, even for rare items.

Therefore, every bidder's best strategy is a Nash equilibrium: place one's highest bid at the beginning and return to see the results only at auction's end.
 

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Yes, set your maximum price you'll pay at the beginning, but also use a sniping service to place your bid at the last moment.

The use of sniping service allows you to steal deals away from bidders who re actively bid against each other in small increments. If you place your max bid at the beginning reactive incremental bidders tend to run up the price sooner over the course of an auction.
 

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Discussion Starter · #3 ·
Yes, set your maximum price you'll pay at the beginning, but also use a sniping service to place your bid at the last moment.

The use of sniping service allows you to steal deals away from bidders who re actively bid against each other in small increments. If you place your max bid at the beginning reactive incremental bidders tend to run up the price sooner over the course of an auction.
I would say one should take this into account within the reservation price. Otherwise, any amount above the reservation price is valued as cash than the given product.

However, a sniping service is useful if the item is price inelastic for you, and thus, money is no object.
 

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Interesting write-up, TempusExMachina. I totally agree.

cheers,
Jake.
 

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I would say one should take this into account within the reservation price. Otherwise, any amount above the reservation price is valued as cash than the given product.

However, a sniping service is useful if the item is price inelastic for you, and thus, money is no object.
???

A sniping service places an Ebay bid at the last moment. In no way does this change the way Ebay determines the winner of the auction or final winning price. A sniping service does not automatically raise bid amounts, it simply places a bid at an amount you set at the last moment. Nothing inelastic about it all.

Using your strategy, if you think the maximum price you'll pay for a watch is $100 and you place your bid of $100 when a 9 day listing first becomes active, everytime someone bids against the bid you've placed, the price will rise up towards your maximum bid. There will be 9 days during which others can come and continue to bid up the price. If a competing bidder uses the competitive bidding strategy of bidding up the price every time they are not the highest bidder, the price will soon be at your maximum or above your maximum if they get caught up in being competitive.

If two bidders used the strategy of bidding their maximum price at the beginning of the auction, lets say you bidding $100 and the other bidding $95, the bid price will be above $95 on the first day of the auction and the likelihood of it getting bid above $100 will be higher, since it still has 8 days during which it can be bid up.

If everyone in the auction uses a small increment bid strategy, bidding against other bidders using the same strategy the bid price rises slowly. This is typical in my experience. No one has placed a maximum competitive bid and so the price doesn't rise fast. When this happens the gap between the bid price and the final price in the last 30 seconds of the auction is typically pretty large. A snipe works, because it is typically a significantly larger bid than where the bid price is at the beginning of the last 30 seconds and because of the limited time left to place bids it is hard for reactive bidders to get carried away and raise the price to unacceptable levels.

The snipe works by keeping the price as low as possible up to the very last minute of the auction and leaving competitive bidders with as little time as possible to competitively respond to bidding. If the snipe is used with the strategy you laid out in your post (you see the item and queue up a snipe bid for $100 for example), it doesn't cause you to pay anymore for the item than you would have if you placed the bid at the beginning of the auction, but what it has done is minimized the opportunity competitive bidders have to respond to the bid you've placed, which increases the opportunity for you to purchase the item and for the purchase price to be below your maximum price.

Implicitly snipe bidding, since it is queued bidding, not real time bidding, reflects the maximum a bidder is willing to pay with some forethought. Most systems will not accept changes to snipe bids in the last minute or so of an auction and will not accept new snipe bids on items in an auction ending within a few minutes. Snipe bidding is the way to bid without getting caught up in the emotion and competitiveness of real time bidding, and minimizing the price escalation that your bid can cause.
 

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Discussion Starter · #7 ·
I hope this is clearer:

If the leading bidder has say $100 and that is equal to your reservation price and you snipe bid, you will lose.
Putting your highest bid outright is best in this situation.

Knowing that there are a multitude of bidders, there will be bidders implementing a various array of strategies - bidding first, bidding a few days in, bidding at the last second. Regardless, let's take the instance at which one sets the price first and the bid amount rises. It does not matter if it evokes incremental bidding. You have set the maximum you will pay outright and you have the first mover advantage. If you lose the bid, then you value the cash more.

If you are inferring that incremental bidding is less likely or less volatile by sniping your maximum bid, and that you and your opponent's maximum bids do not increase as much in the beginning, of course. However, the majority of the bidding occurs moments before the auction's end. In fact, I would argue that snipe bidding (the knowledge of it) leads to greater irrational behavior, since nearing the auction's end incites an emotional desire to bid up, so others may implement the same snipe bidding strategy. Not every bidder bids the smallest increment. Knowing that others may bid their maximum towards the end of the auction should rationally lead you to bid your maximum at the beginning so that your maximum bid takes priority.

If others snipe bid their maximum, and yours is less, then you will lose no matter how you strategize, so this is the same scenario as the Nash Equilibrium I have presented. However, if others snipe bid the same maximum, whichever bid arrives at eBay first will win (a toss up). Placing your highest bid outright avoids this.
 

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Discussion Starter · #8 ·
As you know, yield management goes out to capture as many consumers as possible via reservation price targeting, but putting forth the highest paying customers forward. Nevertheless, the earlier you enter, the lower your cost because of the elasticity of choice. This is why airlines offer hundreds of dollars for you to give up your seat - they can make more money selling an expensive ticket at the last moment and reap the marginal difference.
 

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Thanks to all for the interesting insight. Very good info!
 

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Discussion Starter · #10 ·
However, a sniping service is useful if the item is price inelastic for you, and thus, money is no object.
The point I am making here is that snipe bidding is equivalent to bidding outright, given that you will pay whatever amount (e.g. $10K bid guarantees you'll win that Poljot you've been eyeing, and you only pay the second highest bid). Volatility in price increase is the same if you control for time - prices rises no matter what to the level of demand.
 

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I hope this is clearer:

If the leading bidder has say $100 and that is equal to your reservation price and you snipe bid, you will lose.
Putting your highest bid outright is best in this situation.
First mover advantage is you win in the case of ties. The downside is your bidding position has the most opportunity to be discovered since there is the largest amount of time to bid against it.

Knowing that there are a multitude of bidders, there will be bidders implementing a various array of strategies - bidding first, bidding a few days in, bidding at the last second. Regardless, let's take the instance at which one sets the price first and the bid amount rises. It does not matter if it evokes incremental bidding. You have set the maximum you will pay outright and you have the first mover advantage. If you lose the bid, then you value the cash more.
Same with sniping. If you set your snipe to the maximum you will pay.

If you are inferring that incremental bidding is less likely or less volatile by sniping your maximum bid, and that you and your opponent's maximum bids do not increase as much in the beginning, of course. However, the majority of the bidding occurs moments before the auction's end. In fact, I would argue that snipe bidding (the knowledge of it) leads to greater irrational behavior, since nearing the auction's end incites an emotional desire to bid up, so others may implement the same snipe bidding strategy. Not every bidder bids the smallest increment. Knowing that others may bid their maximum towards the end of the auction should rationally lead you to bid your maximum at the beginning so that your maximum bid takes priority.
You say priority, but the issue is it reveals your bidding position the soonest. They call it sniping because the advantage to bidding the max price you're willing to pay at the last moment is the element of surprise. Your position is hidden, until you fire, just like a sniper. This works to your advantage when there is little or no time to respond.

The majority of bid activity occurs at the end of the auction because of snipe bidding and because this is when people who really want an item are likely to be active. As snipe bidding isn't real time, it is bereft of the emotion that occurs in the last moments of an auction. The price people snipe is the max they are willing to pay absent of looking at the competition at the end of an auction, just as it is if you do place you max bid at the beginning of the auction. As the price is the price, if you set the same max price you're willing to pay in your bid at the beginning or end of auction, how can a bid at the end, incite anymore irrational behavior than the same amount bid at the beginning of the auction? The experience to competing bidders is the same except they have more time to respond when you bid early. In either case, when a competing bidder bids too little, Ebay lets them know immediately, and all other things equal the greater the amount of time and the number of people who Ebay basically tells "you're losing", the higher the price for an item. People are competitive and don't like to be told they are losing. The more you do it and the longer you do it, the higher the likely price at the end.

If others snipe bid their maximum, and yours is less, then you will lose no matter how you strategize, so this is the same scenario as the Nash Equilibrium I have presented. However, if others snipe bid the same maximum, whichever bid arrives at eBay first will win (a toss up). Placing your highest bid outright avoids this.
Yes, snipe bidding has no impact on the fact that whoever is willing to the pay the most wins and the advantage of bidding your max first is you win ties. The disadvantage is your bid position has the most time to be discovered. Early discovery of a competitor's max bid price, leads to competitive bidders upping their bids by the minimum bid premium amount and winning items you want for the minimum incremental price. The bid max price first tends to cause bidders to chase items, losing by small amounts as competitive bidders bid a little more and a little more over time. Remember competing bidders don't need to wait to figure out they haven't bid enough to finally win the auction when you bid the maximum amount you're willing to spend at the beginning of an auction. Ebay tells them as soon as their bid is placed, that it isn't enough to win, encouraging them to bid more and of course it tell you when your bid has been beaten, encouraging you to compete and bid more. This makes ties very unlikely. Snipe bidding removes your bidding as an impetus to increasing the bid price of an item, and it may increase the probability of ties and losing to ties, but it also increases the probability that an item will go for lower amount by minimizing the amount of bidding competition.

Fundamentally the power of auctions is to elevate prices through competition, and minimizing the effects of competitive emotion in auctions is the way to minimize the prices you pay.
 

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I will have to argue slightly and say that while putting in your maximum bid early and letting the auction run it's course will be efficient and prevent you from getting caught up in 'auction fever' and endlessly increasing your bid, it won't be the most efficient way to use ebay...

As I understand it, an auction starts at an initial price, say 99c, and then steps up in price based on a minimum increment, say 50c. So initially the price will be set at 99c, and you are free to put in your bid for 99c. The next person may want to out bid you, so will enter a price of your bid + increment, in this case $1.49. You are then free to bid the next increment to out bid them ($1.99) and so on and so forth. The auction ending when one person decides they don't want to pay any more, and having made the highest bid, the other wins.

Ebay simplifies this a bit in allowing you to place a maximum bid - you may feel an item is worth $10, so you can bid $10, and your bid will initially appear as the lowest allowable bid (so stating at 99c) and when somebody else bids, if they bid any less than your maximum bid of $10, ebay will automatically place a bid for you at the next increment up. So you bid $10 on the item, the next guy put in a minimum bid of $1.49, ebay will automatically put in a new bid for you of $1.99, if he then bids again and raises the price to $2.49, ebay bids for you at $2.99 and so on. Obviously he can also put in a maximum bid, so ebay figures it all out for you and ends up at the price of the maximum bid of the loser + the minimum increment.

Bidding early means you can put in your bid, let the auction run and either you were prepared to pay more than everyone else and win, or you lose. The problem with this is that everyone else gets a chance to see your bid and raise it - so someone puts in a bid they like, it raises the price to that, someone else can come along and bid a bit more and often you will find people trying to outbid each other and raising up the price and outbidding you.
On the other hand bidding late ('sniping' at the last second) means that you don't give everyone else the chance to see your bid and then raise their bid to outbid you - everyone places their maximum bid, and whoever places the highest wins the item. Without the loser getting the chance to think 'well, maybe if I bid $1 more...' putting in a new bid of $1, raising the price of the item but still being beaten by your maximum - essentially raising the price of the item by $1 for you. Bid at the last minute and they don't get the chance.
It also means you pick your maximum value, bid it late and you either win or lose - you don't get the chance either to raise your bid - so you can't just decide to try and raise your bid to try and win, ending up in you buying the item for more than you wanted to (rather than just waiting for another to appear later on).
 

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Read the first sentence and stopped reading. That's a horrible way to bid. First of all, if the seller is not honest they could keep bumping up the price. Secondly, you could get caught in an auction war and end up paying "extra"

BEST way to bid, is to snipe and place a bid in the last second.
 

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Discussion Starter · #14 ·
Bidders do not know your maximum unless they bid above your maximum. It is still an unknown to others what your maximum bid is - they only know the rising minimum. You set your ABSOLUTE maximum at the beginning, and any price above that you cannot pay. Not just a "maximum" that can rise.

No matter what the scenario, it doesn't matter if your position is discovered if others have set a maximum equal to (before yours) or greater than yours. If 9 out of 10 people including yourself snipe bid, then no one incrementally bids and you set your absolute maximum outright. You have the greatest advantage you can ever have. No price is revealed.

If 8 out of 10 people snipe bid, and person incrementally bids up your outright absolute maximum, all that is revealed is the minimum price. If it goes above that, the whole auction becomes irrelevant, regardless if it is a penny above. If you tell yourself you "should" have put a penny more, then it is not your absolute maximum bid by definition.
 

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Discussion Starter · #15 ·
Read the first sentence and stopped reading. That's a horrible way to bid. First of all, if the seller is not honest they could keep bumping up the price. Secondly, you could get caught in an auction war and end up paying "extra"

BEST way to bid, is to snipe and place a bid in the last second.
Yes, there are dishonest sellers who are in cahoots. If they bid up the price, it still falls within your set price below or equal to the amount you pay before satisfaction dips due to cost. The same applies with the "auction war" when eBay is a proxy bidder on your behalf.

If eBay sellers want to engage in a false bid, they will bid regardless of whether you bid outright and they will engage in bidding up the price on their own.

Again, you must consider ALL players and their strategies. If you place your ABSOLUTE MAXIMUM bid first, not only do you get priority, consider someone that places a bid outright, one person snipe bids, and everyone else incrementally bids. Those that incrementally bid are bidding up the price, yes, but they are also bidding up the price regardless if you bid outright. You MUST consider this situation. It doesn't matter if your position is revealed when you have set your maximum price - you can't pay any more. If the bid is at one interval below your maximum bid, what are you going to do? Raise the maximum? No, you cannot because you have set your maximum at the beginning.

You are not paying extra, either. If 8 people snipe bid, 1 person bids outright, and the last person bids up your price, at the end of the day, we have maximum bids to compare. What is forgone in your example are the last snipe bids which indeed are maximum bids that bid up the price. The only difference if you don't bid your maximum outright and instead snipe bid is that you do not have the first mover advantage.
 

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As long as there is one bidder who re-evaluates what her maximum bid is every time she is out bid, sniping is good since she won't have time to reach and ultimately surpass your max bid.
 

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Discussion Starter · #17 · (Edited)
Bidding early means you can put in your bid, let the auction run and either you were prepared to pay more than everyone else and win, or you lose. The problem with this is that everyone else gets a chance to see your bid and raise it - so someone puts in a bid they like, it raises the price to that, someone else can come along and bid a bit more and often you will find people trying to outbid each other and raising up the price and outbidding you.
On the other hand bidding late ('sniping' at the last second) means that you don't give everyone else the chance to see your bid and then raise their bid to outbid you - everyone places their maximum bid, and whoever places the highest wins the item. Without the loser getting the chance to think 'well, maybe if I bid $1 more...' putting in a new bid of $1, raising the price of the item but still being beaten by your maximum - essentially raising the price of the item by $1 for you. Bid at the last minute and they don't get the chance.
It also means you pick your maximum value, bid it late and you either win or lose - you don't get the chance either to raise your bid - so you can't just decide to try and raise your bid to try and win, ending up in you buying the item for more than you wanted to (rather than just waiting for another to appear later on).
I was typing when you responded! But let me reiterate, EVERYONE WILL BE BIDDING THEIR MAXIMUM < not yelling, just stressing!
If 9 out of 10 people snipe bid and you're the only one bidding outright, the auction IS INDEED bid up, just at the end of the auction. You must consider that EVERYONE is bidding their maximum in a sniping bid. Your ONLY HOPE IN THIS SITUATION IS TO BID YOUR HIGHEST. THIS IS YOUR ABSOLUTE BEST STRATEGY. < Again, not yelling. Keep in mind that this scenario does not carry with it an incremental rise in price as the auction plays out, because it is irrelevant. The incremental rise in price just happens all at once at the end.

It doesn't even matter if my absolute maximum bid is everything in my bank account and you know this figure, because I cannot pay a penny more. You may know this but can't do anything about it because you can't afford it. Effectively, then, you are out of the auction.

Can you borrow more money to raise your absolute bid? Yes, but you take this into account beforehand. If you find that at the end of the auction you pay everything in your bank account + the borrowed amount was a waste, it has exceeded your reservation price.

In other words, THERE IS NO NEED TO RE-EVALUATE YOUR BID BECAUSE YOU HAVE SET THE ABSOLUTE MAXIMUM < not yelling, stressing. I repeat from above, sniping bids should be interpreted as incremental rises in price of the other bidder's absolute MAXIMUM amount they are willing to pay.

Furthermore, even if you are the the lowest maximum bidder and you are trying not to bid up the price so that others may or may not re-evaluate their maximum bid price, you must assume that they have set their maximum price < you cannot do anything about these other independent bidders and their maximum amounts.
Why? Consider that all of the bidders have set their lower bound maximum, and your price exceeds that. Great, in this situation could win, right? Yes. But, consider further that they have all set their maximums above yours. you lose, right? yes. You have no idea what their strategies are - it could be a mix of the two. Your best chance is to set the highest bid outright.

The greatest probability of winning is to place your maximum outright. This isn't to say you'll get the best deal - you do not know whichever strategy will produce the best deal since you don't know the strategies of others.
 

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Discussion Starter · #19 ·
As long as there is one bidder who re-evaluates what her maximum bid is every time she is out bid, sniping is good since she won't have time to reach and ultimately surpass your max bid.
Which is the very reason why you place your Absolute Maximum bid outright!
 

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All except for my items,,you need to bid until you are flat broke...haha
If you don't have much control maybe Ebay is not a place for you.
 
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