Auction sniping

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Auction sniping is the process of watching a timed online auction (such as on eBay or Yahoo!), and placing a winning bid at the last possible moment (often seconds before the end of the auction), giving the other bidders no time to outbid the sniper. Some bidders do this manually, and others use software designed for the purpose. A bid sniper is a person or software agent who performs auction sniping.

There are also online sniping services, where the software agent is run from a website rather than the sniper's own computer. This decreases the failure rate of the snipe, because the website is expected to have more reliable servers that might be quicker to react.

1 Legality
2 Uses of bid sniping
3 Objections to bid sniping
4 Deterrents
5 Security
6 References

[edit] Legality

While auction sniping is frowned upon by some people, it does not break any of the rules established by eBay. A few other auction sites (such as Yahoo! auctions, iGavel, and the New Zealand auction site TradeMe) automatically extend the bid deadline by a few minutes if a bid is placed in the last moments of the auction to give other buyers time to react.

[edit] Uses of bid sniping

Experienced bidders of online auctions with fixed ending times often prefer entering bids late in the auction to avoid bidding wars (multiple rounds of bidders each increasing their maximum bid to temporarily regain "current highest bid" status) or bid chasing (where the presence of an existing bid encourages others to bid on the same item).

Economic analysis of sniping (Roth and Ockenfels, 2000) suggests that it is a rational gain-maximizing (i.e., price-minimizing) strategy for bidders in auctions which fulfill two criteria: 1) the end time is rigidly fixed (such as those on eBay), and 2) it is possible to gain additional information about the "true" value of the item by inspecting previous bids. For example, a novice antiques buyer may prefer to bid in auctions which already have bids placed by more experienced antiques buyers, on the grounds that the items which the experienced buyers are interested in are more likely to be valuable. In this case, more informed buyers may delay bidding until the last minutes of the auction to avoid creating competition for their bids, leading to a lower winning bid. Analysis of actual winning bids on eBay (Yang and Kahng, 2006) suggests that winning bidders are more likely to have placed a single bid late in the auction, rather than placing multiple incremental bids as the auction progresses.

[edit] Objections to bid sniping

Sellers generally object to bid sniping, since widespread use of last-minute bidding reduces the number of successful bids (since some last-second bids may not be transmitted to the auction software before the auction closes due to delays in the system or other technical problems), reduces competition between bidders, and leads to a lower final price for the item. Snipers counter that if the practice were outlawed they would not bid and that the final price would therefore be lower than the sniping bid.

Non-sniping bidders object to sniping, claiming that it is unfair to place bids at a point when it is impossible or unfeasible for other bidders to evaluate and possibly counter the bid, causing them to lose auctions even though they would have been willing to meet the winning bid amount. Note that this is an economically irrational objection in the case of eBay, whose proxy bidding system is designed to allow bidders to specify the absolute maximum they are willing to bid on an item (i.e., an "economically rational" bidder will never raise their bid, since their first bid is also their maximum bid). However, economically rational bidders still object to sniping when multiple, identical items are listed, as this ensures they must wait the largest possible amount of time to find that their maximum bid has been exceeded (instead of possibly being able to immediately bid on one of the other items).

[edit] Deterrents

Automated bid sniping software can be defeated by requiring bidders to enter numbers presented as a distorted image prior to entering their bid, a CAPTCHA system that Eric M. Jackson stated was invented by PayPal. This ensures that all bids are entered manually but excludes people with visual disabilities from making a bid.

Some on-line auction systems attempt to discourage sniping (manual or automatic) by automatically extending the auction time if a last-minute bid is placed. This approach leaves all bidding open, and allows any bidders that are watching during the final few minutes to counter-snipe any snipers. This approach can sometimes be 'beaten' by running sniper software on a faster Internet connection (unless the system has bid flood protection), or by sniping against impatient and disgruntled manual bidders who 'give up' after several time extensions, but before reaching their maximum bid. It can also lead to last-minute automated out-of-control bidding wars between snipers, which could extend the bidding time long beyond what the seller desired. Any site which implements a limit to the number of time extensions allowed simply causes a final extension snipe.

Some auction systems, such as eBay, allow bidders to end an auction early by paying a predetermined final price for the item (generally substantially more than the minimum bid). This discourages sniping because another bidder can simply purchase the item outright while the sniper is still waiting for the right moment to bid. In eBay this Buy it now option disappears after the first regular bid is placed, and so the deterrent only relates to items that have yet to garner any bids.

Another method to discourage snipers is to allow bidders to place a hidden or proxy bid, indicating to the system, but not the sniper, the absolute maximum they would be willing to extend their original bid, but without actually placing a bid above the original amount unless another person bids against them. This system (which is used by eBay) can still be beaten by the sniper increasing their bid in small increments until the proxy bid is exceeded; thus, the sniper must be willing to pay a little bit more than the previous bidder's hidden maximum. Proxy bidding also discourages 'bidding wars', but on the other hand discourages 'opportunistic' bidding on low-priced items, which may sometimes be beneficial in getting bidding started and escalating the price, and which contributes to the 'energy' of an open auction.

Properly implemented, proxy bidding would be considered a type of closed auction system, where bidders cannot see the current highest bid until they've actually out-bid it, and where winners pay an incremental amount more than the second highest bid. Proxy bidding requires the wise bidder to know in advance the value of an item and their limit for bidding on it, and to have trust in their auctioneer not to disclose this limit, even accidentally.

However, improper implementation of proxy bidding introduces a new danger, a fraudulent practice known as maximum bid fishing (a type of shilling). For some implementations of the proxy system (such as the one used on eBay), although the server does not disclose the current maximum bid, it will indicate when a previous maximum has been outbid. This opens a loop-hole which allows an agent for the seller, using sniping software, to incrementally escalate their bid until they reach (and narrowly exceed) the current hidden maximum. They then hope to get one more bid increment out of the original bidder, thereby successfully reaching (or actually slightly exceeding) the bidder's original maximum hidden bid. The danger to the seller in this case is that the original bidder may not choose to increase their bid, leaving the seller with a futile transaction (selling the item to themselves) which will still incur a fee from the auction service. However, it is possible for the seller to avoid this fee by submitting a mutually agreed cancellation from the buyer and seller application which will result in the waiving of the auction fee as well as a 'free relist' credit.

In all cases, bid sniping is encouraging for the sniper, discouraging for the sniped, but not illegal as the sniper must actually be willing to pay more than the next highest bidder. In the end, getting sniped is really just a 'feeling' that you 'would have' extended your bid a dollar more, 'had you only known' that someone else would themselves pay a dollar more.

Having your bid fished-out is a feeling that 'you should have been able to' get the item for a lower price, if the seller had not been informed of how high you would bid.

[edit] Security

When bidders decide to use sniping, they lay their trust to either sniping software, or to an online sniping service, and provide them with their eBay username and password. To many bidders, this is a deterrent to using sniping at all.

Furthermore, unlike eBay, which transmits passwords from the bidder's browser in a secure manner, some online sniping services do not use a secure connection to transmit the eBay username and password from the bidder's browser to their servers. This effectively degrades the protection provided by eBay. It is, therefore, advisable to make sure that a sniping service supports SSL before using it.

[edit] References

[edit] Academic papers

Alvin E. Roth and Axel Ockenfels (2000). "Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet", NBER Working Paper No. 7729. [1]
I. Yang and B. Kahng (2006). "Bidding process in online auctions and winning strategy: Rate equation approach" Physical Review E, 73:067101. [2]
- Summary: Online auctions have expanded rapidly over the last decade and have become a fascinating new type of business or commercial transaction in this digital era. Here we introduce a master equation for the bidding process that takes place in online auctions. We find that the number of distinct bidders who bid k times up to the tth bidding progresses, called the k-frequent bidder, seems to scale as nk(t)~tk^-2.4. The successfully transmitted bidding rate by the k-frequent bidder is likely to scale as qk(t)~k^–1.4, independent of t for large t. This theoretical prediction is close to empirical data. These results imply that bidding at the last moment is a rational and effective strategy to win in an eBay auction.