Snipers, Shills, and Snipers, Shills, and SharksSharks

Ken SteiglitzKen SteiglitzP i t U i itP i t U i itPrinceton University Princeton University

Press, 2007Press, 2007

Find the treasure!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 aDido 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 Nikeon pedestal to r ; in ex : ΓABHNωNon pedestal to r.; in ex.: ΓABHNωN,

The nineteenthThe nineteenth--century art expert Edmond Bonnaffe’century art expert Edmond Bonnaffe’i t d t h b d th ti t d t h b d th tis 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 porcelainafter 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 wasgoodwill, and he drew the conclusion that collectors‘ goodwill, and he drew the conclusion that collectors‘ mania embraced the desire to own things for oneselfmania embraced the desire to own things for oneselfmania 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(Translated from the French by D Pryce--Jones)Jones)(Translated from the French by D. Pryce(Translated from the French by D. Pryce Jones)Jones)

Three questions three levelsThree questions three levelsThree questions, three levelsThree questions, three levels

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

Wh t i th i d th f ti ?Wh t i th i d th f ti ?•• 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? p gp g

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

•• The mechanism:The mechanism: NotNot the most obviousthe most obvious•• 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 secondWinner pays second--highest bidhighest bid2)2) At any point, nextAt any point, next--highest bid is postedhighest bid is posted3)3) Bidding ends at a fixed timeBidding ends at a fixed time)) gg

A trusted third partyA trusted third partyA trusted third partyA trusted third party

•• Transparency engenders trust and canTransparency engenders trust and can•• 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 ) g y) g y

active auctionsactive auctions

Theoretical roots: William VickreyTheoretical roots: William VickreyTheoretical roots: William VickreyTheoretical roots: William Vickrey•• 1961 paper proposes 1961 paper proposes

22ndnd--price auctions, price auctions, now called “Vickrey now called “Vickrey auctions”auctions”auctions”auctions”

Wins Nobel prize 1996Wins Nobel prize 1996Wins Nobel prize 1996Wins Nobel prize 1996

Plus John NashPlus John NashPlus John NashPlus John Nash

•• EquilibriumEquilibrium behavior:behavior: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 ll ii d id ivaluevalue is is dominant dominant

Wins Nobel prize, 1994

The lay of the theoretical landThe lay of the theoretical land

Vickrey 1961fi t d d i

IPV

Ril & S l 1981

symmetric biddersfirst− and second−price

REVENUEEQUIVALENT

Riley & Samuelson 1981

symmetric bidderslarge class, reserve

Myerson 1981optimal, not efficientasymmetric biddersasymmetric bidders

Milgrom & Weber 1982affiliated values

revenue ranking, but only with symmetric biddersaffiliated values

MostMost naïvenaïve theorytheoryMost Most naïvenaïve theorytheory

•• Bid your private valueBid your private value•• Bid your private valueBid your private value•• Sit back and relax…Sit back and relax…

I thi t t B i Vi k tiI thi t t B i Vi k ti•• 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 vsEarly bidding vs SnipingSnipingEarly bidding vs. Early bidding vs. SnipingSniping

•• ButBut early biddingearly bidding 80AR DENARIUS, HADRIAN, AequitasBut But early biddingearly bidding

affects behavioraffects behavior70

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Dangers of early bidding con’tDangers of early bidding con’tDangers of early bidding, con tDangers of early bidding, con t50

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

160 Hadrian, Alexandria, Athribites nome

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31 1 1 1

4 Reserve @ $150

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The internet as a laboratoryThe internet as a laboratoryld ild i f df da a goldminegoldmine of dataof data

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

•• Typical studies:Typical studies:•• Typical studies:Typical studies:1)1) Hossain & Morgan 2003: Test of revenue Hossain & Morgan 2003: Test of revenue

equivalenceequivalenceequivalenceequivalence2)2) Katkar & LuckingKatkar & Lucking--Reiley 2000: Is a secret Reiley 2000: Is a secret

reserve a good idea?reserve a good idea?reserve a good idea? reserve a good idea?

General conclusions:General conclusions:b i ib i ivery basic economicsvery basic economics

•• Buyers should try to decrease competition: bidBuyers should try to decrease competition: bidBuyers 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 y py plow 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 resultsSome recent empirical resultsSome recent empirical results

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

•• Buyers tend to overlook Buyers tend to overlook somewhat somewhat higher higher shipping costsshipping costspp gpp g

•• 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)( g )( g )

TheThe darkdark sidesideTheThe dark dark sideside

•• ShillsShills•• ShillsShills•• Shadowing biddersShadowing bidders

E ti d i ti lt l tif tE ti d i ti lt l tif t•• Exporting and importing cultural artifactsExporting and importing cultural artifacts•• FakesFakes•• Rings (bidder collusion)?Rings (bidder collusion)?

A (likely) shillA (likely) shill

•• Bidder 3 bidsBidder 3 bids 90

100

Item title: Webster Peter Rabbit Youth Set

3 2

2 2 Reserve = $95 ______

•• Bidder 3 bids Bidder 3 bids $94 when the $94 when the reserve isreserve is 70

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below that. below that. She has She has f db k ff db k f

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80 90 100 110 120 130 140 150 160 170time in hours