Nibbling, Sniping, and the Role of Uncertainty in Second-Price, Hard-Close Internet Auctions

Abstract

Internet auctions have gained widespread appeal as an efficient and effective means of buying and selling goods and services. This study examines buyer behavior on eBay, one of the most well-known Internet auction Web sites. eBay’s auction format is similar to that of a second-price, hard-close auction, which gives a rational participant an incentive to submit a bid that is equal to his or her maximum willingness to pay. But while traditional second-price, hard-close auctions assume that participants have reliable information about their own and other bidders’ reservation prices, eBay participants usually do not. This raises the possibility that eBay participants may adapt their bidding strategies and not actually bid their reservation prices because of increased uncertainty. In this article, we empirically examine the bidding patterns of online auction participants and compare our findings to the behavior of bidders in more conventional auction settings.