Snipers, Shills, and Snipers, Shills, and SharksSharks

Ken SteiglitzKen Steiglitz

Princeton University Princeton University Press, 2007Press, 2007

Find the treasure!

A bronze coin from Tyre, Phoenicia, under the reign of Valerian I, 253-260 AD.

Dido stands left holding sceptre and cubit rule; to the left a mason working on the top of a gateway, below a man digging with a pick.

Neapolis, Samaria, Mt. Gerazim, supported by eagle, under Trebonius Gallus, 251-3 AD

Gaba, Trachonitis, Coele-Syria, Ant. Pius, 138-161 AD,tetrastyle temple with three arches above, within,turreted city goddess wearing long chiton, hldg. longstandard in r. hand, cornucopiae in left, crowned by Nike on pedestal to r.; in ex.: ABHNN,

The nineteenth-century art expert Edmond Bonnaffe’The nineteenth-century art expert Edmond Bonnaffe’is reported to have observed that is reported to have observed that

"after Michelangelo's pictures and the Medici porcelain "after Michelangelo's pictures and the Medici porcelain the rarest thing he had ever seen among collectors wasthe rarest thing he had ever seen among collectors was goodwill, and he drew the conclusion that collectors‘ goodwill, and he drew the conclusion that collectors‘

mania embraced the desire to own things for oneself,mania embraced the desire to own things for oneself, the desire to own them for others, and the desire to stop the desire to own them for others, and the desire to stop

other people owning anything."other people owning anything."

M. Rheims, "The Strange Life of Objects: 35 Centuries of M. Rheims, "The Strange Life of Objects: 35 Centuries of Art Collecting", Atheneum Publishers, New York, 1961, Art Collecting", Atheneum Publishers, New York, 1961, (Translated from the French by D. Pryce-Jones)(Translated from the French by D. Pryce-Jones)

Three questions, three levelsThree questions, three levels

• Why is eBay so successful?Why is eBay so successful?

• What is the received theory of auctions?What is the received theory of auctions?

• How well does the theory work in How well does the theory work in predicting human behavior? predicting human behavior?

Why is eBay so successful?Why is eBay so successful?

• The mechanism: The mechanism: NotNot the most obvious the most obvious way to run an online auction!way to run an online auction!

1)1) Winner pays second-highest bidWinner pays second-highest bid

2)2) At any point, next-highest bid is postedAt any point, next-highest bid is posted

3)3) Bidding ends at a fixed timeBidding ends at a fixed time

A trusted third partyA trusted third party

• Transparency engenders trust… and can Transparency engenders trust… and can invite interlopers: eBay treads the lineinvite interlopers: eBay treads the line

• Recent compromises: bidder ID’s Recent compromises: bidder ID’s • 1) anonymized after bids reach $2001) anonymized after bids reach $200• 2) can no longer search by bidder for 2) can no longer search by bidder for

active auctionsactive auctions

Theoretical roots: William VickreyTheoretical roots: William Vickrey

Wins Nobel prize 1996Wins Nobel prize 1996

• 1961 paper proposes 1961 paper proposes 22ndnd-price auctions, -price auctions, now called “Vickrey now called “Vickrey auctions”auctions”

Plus John NashPlus John Nash

• Equilibrium Equilibrium behavior: behavior: translates human translates human behavior to a behavior to a mathematical mathematical condition condition

• Bidding one’s Bidding one’s private private valuevalue is is dominant dominant

Wins Nobel prize, 1994

The lay of the theoretical landThe lay of the theoretical land

Most Most naïvenaïve theory theory

• Bid your private valueBid your private value• Sit back and relax…Sit back and relax…• In this context, eBay is a Vickrey auctionIn this context, eBay is a Vickrey auction

This is eBay’s “proxy bidding”This is eBay’s “proxy bidding”

Hopelessly naïve Hopelessly naïve

Early bidding vs. Early bidding vs. SnipingSniping

• But But early biddingearly bidding affects behavioraffects behavior

WAR

Dangers of early bidding, con’tDangers of early bidding, con’t

As bait

Dangers of early bidding, con’tDangers of early bidding, con’t

Curiosity

The internet as a laboratoryThe internet as a laboratorya a goldminegoldmine of data of data

• Empirical studies are proliferatingEmpirical studies are proliferating• They augment laboratory experimentsThey augment laboratory experiments• They augment theoryThey augment theory

• Typical studies:Typical studies:

1)1) Hossain & Morgan 2003: Test of revenue Hossain & Morgan 2003: Test of revenue equivalenceequivalence

2)2) Katkar & Lucking-Reiley 2000: Is a secret Katkar & Lucking-Reiley 2000: Is a secret reserve a good idea? reserve a good idea?

General conclusions:General conclusions:very basic economicsvery basic economics

• Buyers should try to decrease competition: bid Buyers should try to decrease competition: bid late, lay low, hide expertise; i.e., late, lay low, hide expertise; i.e., snipesnipe

• Sellers should try to increase competition: use Sellers should try to increase competition: use low opening bids, avoid secret reserves if low opening bids, avoid secret reserves if possible, be nice to buyers!possible, be nice to buyers!

• eBay’s interests generally align with sellerseBay’s interests generally align with sellers

Some recent empirical resultsSome recent empirical results

• Bidders snipe more often on collectibles -- Bidders snipe more often on collectibles -- more incentive to hide interest and more incentive to hide interest and expertiseexpertise

• Buyers tend to overlook Buyers tend to overlook somewhat somewhat higher higher shipping costsshipping costs

• Bidders tend to avoid items with secret Bidders tend to avoid items with secret reserves reserves

• Bidders tend to prefer auctions with many Bidders tend to prefer auctions with many bidders (herding behavior)bidders (herding behavior)

TheThe dark dark sideside

• ShillsShills• Shadowing biddersShadowing bidders• Exporting and importing cultural artifactsExporting and importing cultural artifacts• FakesFakes• Rings (bidder collusion)?Rings (bidder collusion)?

A (likely) shillA (likely) shill

• Bidder 3 bids Bidder 3 bids $94 when the $94 when the reserve is reserve is $95 and the $95 and the high bid is high bid is below that. below that. She has She has feedback of feedback of 1. A likely 1. A likely shill.shill.

Reserve = $95 ______