Proxy bid

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Proxy bidding is an implementation of an English second-price auction used on eBay, in which the winning bidder pays the price of the second-highest bid plus a defined increment. It differs from a Vickrey auction in that bids are not sealed; the "current highest bid" (defined as second-highest bid plus bid increment) is always displayed. In a standard first-price English auction the winner pays the amount of their bid, regardless of competitor's bids, and it is therefore desirable to place a bid that exceeds the current highest bid by the smallest possible increment. Under proxy bidding, however, the price paid is determined only by competitor's bids and not by the amount of the new bid, and so there is no economically rational incentive to place a bid below the amount one is willing to pay, or to place multiple increasing bids. An "economically rational" bidder will therefore bid the maximum amount they are willing to pay on their first bid, and never raise their bid. In practice, many bidders on eBay place multiple incremental bids, either because they do not grasp the mechanics of proxy bidding or because anticipation of ownership causes the subjective value of the article to increase after the initial bid.