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Overview
Every day on eBay, millions of people buy and sell a vast array of goods, from rare collectibles and antiques to used cars and celebrity memorabilia. The internet auction site is remarkably easy to use, which accounts in part for its huge popularity. But how does eBay really work, and how does it compare to other kinds of auctions? These are questions that led Ken Steiglitz--computer scientist, collector of ancient coins, and a regular eBay user--to examine the site through the revealing lens of auction theory.
The result is this book, in which Steiglitz shows us how human behaviors in open markets like eBay can be substantially more complex than those predicted by standard economic theory. In these pages we meet the sniper who outbids you in an auction's closing seconds, the early bidder who treats eBay as if it were an old-fashioned outcry auction, the shill who bids in league with the seller to artificially inflate the price--and other characters as well. Steiglitz guides readers through the fascinating history of auctions, how they functioned in the past and how they work today in online venues like eBay. Drawing on cutting-edge economics as well as his own stories from eBay, he reveals practical auction strategies and introduces readers to the fundamentals of auction theory and the mathematics behind eBay.
Complete with exercises and a detailed appendix, this book is a must for sophisticated users of online auctions, and essential reading for students seeking an accessible introduction to the study of auction theory.
Product Details
| ISBN-13: | 9780691233864 |
|---|---|
| Publisher: | Princeton University Press |
| Publication date: | 08/10/2021 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 304 |
| File size: | 7 MB |
About the Author
Table of Contents
Preface xiii
To the general reader xiii
To students and course instructors xiv
Synopsis xv
Acknowledgments xix
English and Vickrey Auctions 1
Auctions 1
A Brief History 5
English Auctions 8
Variations on the English Theme 10
Truthful Bidding is Dominant in (Japanese Button) English Auctions 12
Sealed-bid Second-Price (Vickrey) Auctions 14
Mail-bid Auctions 16
Weak Strategic Equivalence of (Japanese button) English and Vickrey Auctions 17
The Four Standard Auctions and Why They Are Two Pairs 18
Disincentives to truthful bidding 21
Questions 22
From Vickrey to eBay 25
eBay as an Evolutionary Product of Vickrey: The California Auction 25
Other Online Auction Rules 28
eBay [not equal] Vickrey 30
Summary 32
Questions 32
eBay Strategies Observed 34
Some Bidding Histories 34
Start and End Clustering, Snipers 34
A Bidding War 36
An Early Bidder andHer Fate 38
"Enter Your Maximum, Then Sit Back and Watch!" 39
Good Reasons to Snipe 40
Other (Generally Good) Reasons to Snipe 43
Bidding Wars, Response to Incremental Bidding 43
Implicit Collusion 44
Nonstrategic Reasons to Bid Late 45
Some (Questionable) Reasons to Bid Early 46
Uncertain Values and the Cost of Discovery 46
Scaring Away Competition 47
Nonstrategic Reasons to Bid Early 50
On Balance, Snipe 51
Seller Choices 51
Opening Bid 52
Use of a Secret Reserve 54
Use of the Buy-It-Now Option 56
Other Seller Choices 57
The Next Three Chapters 60
Questions 61
What If eBay Were First-Price? 65
First-Price Is the More Natural Assumption 65
The Sealed-Bid First-Price Auction 66
The Simplest of All Worlds 67
The Independent Private Values (IPV) model 67
How to Shade 71
Revenue: The Bottom Line 73
A First-Price eBay Would Discourage Early Bidding 74
First-Price Is More Work for the Bidder 75
Further Theory Disappoints 76
Conclusion 77
Questions 78
The Signals that Sellers Send 79
Reserves 79
Price Estimates and Related Revelations 81
Virtue Rewarded, in Theory 83
Art, Silver, and Jewelry Auctions: Empirical Observations of Seller Price Estimates 86
The Complexity of the Seller's Signaling 88
What Theory Has To Say About Reserves 90
The Tradeoff in Second-Price Auctions 91
The Tradeoff in First-Price Auctions 91
The Optimal Reserve 92
The New Equilibrium 92
Practical Implications 94
Field Experiments 95
A Field Comparison of Public vs. Secret Reserves on eBay 99
Lucking-Reiley's Magic Window in Time 100
Field Confirmation of Some First-Price Theory 101
Flatness of Revenue vs. Reserve Curves 102
The Importance of the Extra Bidder 104
Extracting Some Advice for the eBay Seller 105
Questions 107
Prices! 108
Appraising the Scaffolding 108
Valuations 109
Equilibrium 111
Homo economicus 111
Overbidding: Some Classroom Experiments 112
Experiment 1: First-price with Uniformly Distributed Valuations 113
Experiment 2: First-Price with Less Competition 114
Feedback and Learning 116
Feedback in First-Price Auctions 117
Feedback in Second-Price and English Auctions 117
Overbidding: Jars of Nickels 118
Results from the Field: Tests of Revenue Equivalence 120
Magic on the Internet: A Surprise 121
Music CDs and Xboxes on eBay 123
Reconciliations 125
Equilibrium Regained 125
Risk Aversion 126
Spite: An Alternative Theory 130
The Theoretically Informed (and Human) eBay Bidder 134
Simply a Mistake: Bidding Untruthfully in Vickrey's Setting 135
The Winner's Curse 135
Lessons from the Failures of Revenue Equivalence 137
Spiteful Behavior 138
Wars, Frenzies, and Bubbles 140
Questions 147
Transgressions 150
Shills 150
Shill Bidding and Theory 155
Mock Auctions: The More Important Diamond 157
Bidder Rings: 84 Charing Cross Road 158
Ethics 162
The Twinge of Guilt: The Buyer Withholds Information 162
Conversely: The Seller Withholds Information 163
Sniping 164
Shadowing Bidders 164
The Ethics of Feedback 165
Exporting and Importing Ancient Artifacts 166
A Note on Downright Fraud 168
Fakes 169
Questions 173
Epilogue 174
Looking Back 174
Looking Ahead 176
Vickrey's Genesis 179
Introduction 179
A Preview of Revenue Equivalence 180
Quick Review of Some Probability Theory 183
Order Statistics 185
Revenue of Second-Price Auctions 188
First-Price Auctions and Nash Equilibria 189
Revenue Equivalence of First-and Second-Price Auctions with Uniformly Distributed Values 190
A Nash Equilibrium for First-Price Sealed-Bid Auctions 192
Revenue of First-Price Auctions 197
Conditional Expectation 198
An Interpretation of First-Price Equilibrium Bidding Strategy 200
Stronger Revenue Equivalence 200
Dutch Auctions and Strategic Equivalence 202
Another Kind of Auction-the All-Pay Auction 203
Questions 205
Riley and Samuelson's Optimal Auctions 207
Definition of Riley and Samuelson's Class 207
Revenue 208
Optimal Reserve Price 211
Example: First-Price Auction with Reserve 213
Example: Second-Price Auction with Reserve 215
Sad Losers and Santa Claus 216
The Sad-Loser Auction 217
The Santa Claus Auction 219
The All-Pay Auction Revisited 222
Risk Aversion 224
Point of Departure 227
Questions 227
Myerson's Optimal Mechanisms 230
Directions 230
Interdependent Values 231
Asymmetric Bidders 235
Efficiency 236
Myerson's Optimal Mechanism in the Asymmetric-Bidder Case 239
Interlude: Revenue Equivalence Revisited in the Asymmetric-Bidder Case 242
The Optimal Allocation Rule 244
The Payment Rule 247
A Wrinkle 248
Is This Practical? 248
Optimal Riley and Samuelson Auctions Are Optimal Mechanisms 249
Auctions vs. Negotiations 249
Summary 252
Questions 253
Laboratory Evidence: A Summary 254
Introduction 254
Laboratory Experiments 255
Experimental Results for the IPV Model 256
Experimental Results for the Common-Value Model 259
References 263
Index 271
What People are Saying About This
Steiglitz is uniquely positioned to discuss eBay—as a computer scientist, an aficionado of eBay and auctions for rare coins, and someone well versed in auction theory. The book is peppered with vivid examples and first-person tales. The main theme throughout is that real-world bidding behavior and prescriptions for auction design differ sometimes quite markedly from that predicted by classic auction theory. Steiglitz's approach is pragmatic: what does the empirical evidence reveal about how people bid on eBay, and which kinds of auctions are best for sellers? Most notably, the author provides behavioral explanations for commonly observed behavior on eBay, such as sniping, as well as anecdotal evidence about bidding rings and other seller manipulations.
— David C. Parkes, Harvard University
"Wow—a rare treat, enjoyable to read and useful for anyone who ever wondered what to do when they crack open the eBay home page!"—Orley Ashenfelter, Princeton University"There is a wealth of interesting detail about how eBay actually works in practice, along with lessons to be drawn from the theory. Graduate students in economics and allied fields will see this book as a very nice reader were they thinking of doing research in the area of auctions in general and eBay in particular. Steiglitz offers a useful gateway for those interested in delving deeper into this topic area. The book is invaluable for instructors looking to offer a course on electronic auctions."—John Morgan, University of California, Berkeley"Steiglitz is uniquely positioned to discuss eBay—as a computer scientist, an aficionado of eBay and auctions for rare coins, and someone well versed in auction theory. The book is peppered with vivid examples and first-person tales. The main theme throughout is that real-world bidding behavior and prescriptions for auction design differ sometimes quite markedly from that predicted by classic auction theory. Steiglitz's approach is pragmatic: what does the empirical evidence reveal about how people bid on eBay, and which kinds of auctions are best for sellers? Most notably, the author provides behavioral explanations for commonly observed behavior on eBay, such as sniping, as well as anecdotal evidence about bidding rings and other seller manipulations."—David C. Parkes, Harvard University
There is a wealth of interesting detail about how eBay actually works in practice, along with lessons to be drawn from the theory. Graduate students in economics and allied fields will see this book as a very nice reader were they thinking of doing research in the area of auctions in general and eBay in particular. Steiglitz offers a useful gateway for those interested in delving deeper into this topic area. The book is invaluable for instructors looking to offer a course on electronic auctions.
— John Morgan, University of California, Berkeley
Wow—a rare treat, enjoyable to read and useful for anyone who ever wondered what to do when they crack open the eBay home page!
— Orley Ashenfelter, Princeton University