With Valentine’s Day upon us, I’m sure all you romantics are diligently surfing eBay for that perfect and rare gift for your sweetheart. Of course, the fun in surfing eBay isn’t just found in bidding. Winning is even more fun, provided that you don’t pay too much. Therein lies the danger in auction bidding: You can always win if you must. All you have to do is outbid the competition. But, winning doesn’t always mean paying a higher price. Outbidding the competition is as much about strategy as it is about price.
That being the case, what’s your auction bidding strategy? At live auctions, are you a “stealth” bidder, who bids with a wink, a nod or a surreptitious wave? Or do you bid aggressively, hoping to scare off the competition? What’s your online bidding style? Are you a sniper or a squatter? Do you bid online using the same style of bidding that you use at a live auction? When you offer your own online auctions, can you tell where your price will end up by the type of bidders you are attracting? Like most everything else in our taxpayer-funded search for the truth, academia has thoroughly researched these topics and we’re going to have a look at some of their results.
A few years ago, Jeffrey Ely and Tanjim Hossain of Northwestern University conducted field tests on the popular bidding strategy of “sniping” to determine if it was an effective bidding tool. Their results were presented in the paper “Sniping and Squatting in Auction Markets.”
Having been on both sides of the gavel at live auctions, and both a buyer and seller on eBay, I’ve seen or used most of the techniques they discuss. Some of the techniques are effective, but some don’t apply to the antiques business. One thing is certain when it comes to auction bidding: Understanding bidding behavior can help buyers buy lower and sellers sell higher. So let’s dig in and see how we can become better bidders.
First, some definitions are in order.
For those unfamiliar with auction sniping, it’s the online auction equivalent of military sniping. It’s the S.W.A.T. team of auction bidding. When the winning bid in your auction comes from “out of nowhere,” you have been sniped. Bidders never know when a sniper electronically lurks in the background until, in the final few seconds of an auction, the sniper’s bid is automatically entered by sniping software. Other bidders simply can’t respond fast enough to get in a manual bid that tops the sniped bid. Providing that the sniped bid is the highest, it wins the auction suddenly and aggressively.
Sniping only works with online auctions that have a definite ending time (a “hard close”). In a live auction, the bidding goes on for as long as there are bids and until the auctioneer declares the item sold. Some online auction platforms (most notably Amazon) use a “soft close” and extend an auction’s closing time until several minutes have passed without a bid. You can’t snipe those auctions.
Auction squatters are the opposite of auction snipers: They enter an auction early and take up residence until the bidding ends. Squatters bid early and often. They respond to competing bids by posting bids manually.
Ely and Hossain make a strong case in favor of squatting, and claim that the strategy produces a “competition effect.” On a platform like eBay, which can have dozens of concurrent auctions for goods that are essentially the same, squatting an auction sends a clear message to would-be bidders: Stay away. Why would a bidder choose to participate in an auction that has multiple bidders, when there is likely a similar auction with less competition elsewhere? Competition drives up prices, and the best price will be found at an auction with fewer bidders. Unfortunately, when the item offered for sale is rare or collectible there aren’t any competing auctions to go to. When that’s the case there’s no way to avoid competition from squatters and sniping becomes a valuable bidding strategy.
The rise in price that results from multiple bidders in a squatted auction is called the “escalation effect.” Sniping such auctions is beneficial to buyers because the typical online squatter bids as if they were at a live auction: i.e., they respond to competing bids by manually placing a higher bid. Bidding early against such a bidder results in an escalating price because the squatter will continually place higher bids. Sniping reduces visible competition and results in a lower price.
Auction squatters don’t like sniping; they claim that it “isn’t fair.” Snipers respond by saying that auction squatters are naive and don’t understand online auctions. My experience is that whether the auction is live or online, squatted or sniped, the prize goes to the highest bidder. Ely and Hossain agree. In their trials, sniping afforded about a 1 percent advantage over squatting in bidding on consumer goods. I suspect that sniping would hold a bigger advantage if the auctions were for antiques and collectibles.
Although sniping and squatting were in a statistical dead heat for which is the most advantageous bidding strategy, I came away from my reading with a few usable bidding tips:
- If there are multiple auctions being conducted for the item you are seeking, choose the one with no bidders and squat.
- If you decide to squat, be aggressive about it. Don’t bid the minimum amount; doing so just invites competition. Instead, bid a significant percentage of what you are ultimately willing to pay.
- If there are no similar auctions but there are multiple bidders, then snipe the auction. Set up the snipe with your maximum bid and then leave it alone. You’ll either win it or you won’t.
- If you decide to neither snipe nor squat, don’t bid until 90 percent of the auctions time allowance has passed. Thiry percent of auctions bids are placed in the last 5 percent of the auction’s lifetime.
So there’s your Valentine’s Day bidding strategy. And if you forget your sweetie on Feb. 14, you’ll be the one getting sniped in the end.
Originally posted 2013-12-22 13:04:00.