Shilling, Squeezing, Sniping. A further explanation for late bidding in online second-price auctions

Abstract

Several studies provide empirical evidence for sniping (i.e., waiting until the last few seconds to bid) in second-price internet auctions, particularly in auctions at eBay. This evidence was regarded as puzzling and an anomaly for an extended period: How could sniping be consistent with rational behaviour in second-price auctions, where theory predicts that bids’ timing plays no role and there is no incentive to bid less than one’s private value.An essential contribution to this puzzling issue has been the insight by Bose and Daripa (2017) that late bidding is itself a response to the shilling. Their paper explains well late bidding for repeating auctions. However, late bidding also occurs in non-repeated auctions.This paper aims to show that bidders can expect shilling behaviour even in non-repeated auctions, i.e., when perishables are on the counter. For this, we introduce the notion of squeezing. It describes an upstream step to the shilling to substantially reduce the seller’s risk to become the highest bidder. We rationalize the aforementioned results for non-repeated auctions by considering the squeezing strategy.