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Proxy bidding is an implementation of an English second-price auction used on eBay, in which the winning bidder pays the price of the second-highest bid plus a defined increment. It differs from a Vickrey auction in that bids are not sealed; the "current highest bid" (defined as second-highest bid plus bid increment) is always displayed.
eBay uses the term proxy bidding to refer to their implementation of an English second-price auction, in which the winning bidder pays the price of the second-highest bid, in addition to a defined increment. [1] Though similar to a Vickrey auction, the bids are not sealed. The "current highest bid" (defined as second-highest bid plus bid increment) is always displayed.
In a standard English auction, the winner pays the amount of their bid—regardless of competitors' bids—and it is therefore desirable to place a bid that exceeds the current highest bid by the smallest possible increment.
Conversely, under proxy bidding, the price paid is determined only by competitors' bids and not by the amount of the new bid; this eliminates the economically rational incentive to place a bid below the amount one is willing to pay or to place multiple increasing bids. An "economically rational" bidder will therefore bid the maximum amount they are willing to pay on their first bid, and never raise their bid.
eBay's approach, however, reveals the bidder's limit to rival bidders early in the auction, which can sometimes artificially inflate the price of the item higher than its actual intrinsic value, and ultimately encourages the practice of auction sniping.
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.
A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. This type of price auction is most commonly used for goods that are required to be sold quickly such as flowers, fresh produce, or tobacco. A Dutch auction has also been called a clock auction or open-outcry descending-price auction. This type of auction shows the advantage of speed since a sale never requires more than one bid. It is strategically similar to a first-price sealed-bid auction.
An online auction is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with different bidding and selling rules.
A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961 though it had been used by stamp collectors since 1893. In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.
An English auction is an open-outcry ascending dynamic auction. It proceeds as follows.
A bid price is the highest price that a buyer is willing to pay for some goods. It is usually referred to simply as the "bid". In bid and ask, the bid price stands in contrast to the ask price or "offer", and the difference between the two is called the bid–ask spread. An unsolicited bid or purchase offer is when a person or company receives a bid even though they are not looking to sell.
A Japanese auction is a dynamic auction format. It proceeds in the following way.
The dollar auction is a non-zero sum sequential game explored by economist Martin Shubik to illustrate how a short-sighted approach to rational choice can lead to decisions that are, in the long-run, irrational.
A bidding fee auction, also called a penny auction, is a type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid. The auction is extended each time a new bid is placed, typically by 10 to 20 seconds. Once time expires without a new bid being placed, the last bidder wins the auction and pays the amount of that bid. The auctioneer profits from both the fees charged to place bids and the payment for the winning bid; these combined revenues frequently total more than the value of the item being sold. Empirical evidence suggests that revenues from these auctions exceeds theoretical predictions for rational agents. This has been credited to the sunk cost fallacy. Such auctions are typically held over the Internet, rather than in person.
Auction sniping is the practice, in a timed online auction, of placing a bid likely to exceed the current highest bid as late as possible—usually seconds before the end of the auction—giving other bidders no time to outbid the sniper. This can be done either manually or by software on the bidder's computer, or by an online sniping service.
Auction theory is a branch of applied economics that deals with how bidders act in auctions and researches how the features of auctions incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The confluence of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues that can lead to market failure. The design of these rulesets encourages optimal bidding strategies in a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson "for improvements to auction theory and inventions of new auction formats."
A multiunit auction is an auction in which several homogeneous items are sold. The units can be sold each at the same price or at different prices.
Bidding is an offer to set a price tag by an individual or business for a product or service or a demand that something be done. Bidding is used to determine the cost or value of something.
The Becker–DeGroot–Marschak method (BDM), named after Gordon M. Becker, Morris H. DeGroot and Jacob Marschak for the 1964 Behavioral Science paper, "Measuring Utility by a Single-Response Sequential Method" is an incentive-compatible procedure used in experimental economics to measure willingness to pay (WTP).
A Vickrey–Clarke–Groves (VCG) auction is a type of sealed-bid auction of multiple items. Bidders submit bids that report their valuations for the items, without knowing the bids of the other bidders. The auction system assigns the items in a socially optimal manner: it charges each individual the harm they cause to other bidders. It gives bidders an incentive to bid their true valuations, by ensuring that the optimal strategy for each bidder is to bid their true valuations of the items; it can be undermined by bidder collusion and in particular in some circumstances by a single bidder making multiple bids under different names. It is a generalization of a Vickrey auction for multiple items.
Market design is an interdisciplinary, engineering-driven approach to economics and a practical methodology for creation of markets of certain properties, which is partially based on mechanism design. In market design, the focus is on the rules of exchange, meaning who gets allocated what and by what procedure. Market design is concerned with the workings of particular markets in order to fix them when they are broken or to build markets when they are missing. Practical applications of market design theory has included labor market matching, organ transplantation, school choice, university admissions, and more.
The generalized second-price auction (GSP) is a non-truthful auction mechanism for multiple items. Each bidder places a bid. The highest bidder gets the first slot, the second-highest, the second slot and so on, but the highest bidder pays the price bid by the second-highest bidder, the second-highest pays the price bid by the third-highest, and so on. First conceived as a natural extension of the Vickrey auction, it conserves some of the desirable properties of the Vickrey auction. It is used mainly in the context of keyword auctions, where sponsored search slots are sold on an auction basis. The first analyses of GSP are in the economics literature by Edelman, Ostrovsky, and Schwarz and by Varian. It is used by Google's AdWords technology and Facebook.
An ‘‘‘electronic bidding system ‘‘‘ is an electronic bidding event according to defined negotiation rules (eAgreement). A buyer and two or more suppliers take part in this online event.
The generalized first-price auction (GFP) is a non-truthful auction mechanism for sponsored search. In sponsored search n bidders compete for the assignment of k slots. Each slot has an associate click-through rate, the click-through rates are decreasing from top to bottom. The GFP mechanism asks each bidder for a bid. Then the highest bidder gets the first slot, the second-highest, the second slot and so on. On each click the highest bidder pays his bid on the first slot, the second highest bidder pays his bid on the second slot, and so on.
In auction theory, jump bidding is the practice of increasing the current price in an English auction, substantially more than the minimal allowed amount.
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