Aptenodytes wrote:I'm not sure the issue is being framed very clearly.
I disagree with pretty much all of this. The "issue" is clear. It is not rocket science. It is simply a matter of whether or not you want to participate in a bidding war, or worse yet, contribute to its cause, which amounts to the same thing.
1) An individual who wants to buy a specific item in a specific auction needs to enter a bid that automatically increments to their maximum price.
Buyers do not enter bids into eBay. eBay acts as the buyers' agent and enters bids for the buyer. What is commonly called (incorrectly) "entering a bid" on eBay is actually giving eBay the authority to place bids on behalf of the buyer up to a specified amount, the "maximum price" mentioned in the above quoted text. Typically, eBay will enter several bids on your behalf based on a single "bid" (in quotes) that you enter. This can happen over several minutes, hours, or days, depending on other bidders.
2) If all buyers behave that way, markets operate at their most efficient.
Only if the buyers don't make additional "bids". "bids" is in quotes to emphasize the above distinction. This has consequences, the main one being that people entering multiple "bids" (in quotes) during the major course of the auction do two things against their own interest:
- They show their cards to the other players.
- They allow the auction to gradually unfold.
This is what turns it into an exciting game with a frenzy of rising prices.
3) In a particular auction, if everyone chooses to snipe instead, waiting to the last minute to place bids with small incremental increases, then the physical limits of the bid sequencing will result in items selling far below their value to the buyers.
Sniping is the exact opposite
of entering small incremental bids. The sniper only makes one "bid" to eBay. When all the sniper bids come in, eBay sorts them all out. If all buyers entered their maximum bids, the winner by definition won at a price reflecting the value to the buyer. And that would be the buyer willing to spend the most -- pretty much the definition of an efficient, value-seeking, market.
4) If all buyers snipe, markets operate at their least efficient. Sellers will hold back and potential consumer surplus will fail to be realized. Buyers will have more cash than they want and sellers will have attics that are more crowded than they want.
If a seller is worried that the bids won't satisfy him, he puts in a reserve. There is nothing causing him to "hold back."
5) In a mixed market, where there are people who bid their reserve price and people who snipe, we have a strategic situation where the optimal strategy for a new bidder is more complex than under either pure scenario. Surely some economist has figured out an algorithm that yields an optimum decision. A strategic buyer might bid less than there reserve price if the potential gain from winning a snipe war outweighs the gain from purchasing at the reserve price. Logically, any probability of winning the snipe war ought to be enough to budge me from my reserve price strategy -- if I get my reserve price I have broken even; I exchange an amount of cash for an object at exactly the level that makes me indifferent to the two. If I win a snipe war I come out ahead. But something like Zeno's paradox comes into play. If I really want that item, I'm not going to be very happy to lose hundreds of snipe wars, even if each one has some positive expected value. At some point I need to jump over all those theoretically positive values and just buy the damn thing.
That is WAY over analyzed and based on all the above false ideas. Sniping doesn't cause wars, it avoids them. There can't be a war if there is no opportunity to react. How many manual bids can you enter in 3 seconds? By the time you see what a sniper has bid the auction is over.
It is the buyers' reactions to watching the bidding that results in action and reaction -- what is called a bidding war. This is what the sellers and eBay want -- a bidding frenzy that drives up prices as people get excited and anxious about the possibilities of winning or losing the auction. This can't happen in three seconds. Or even five or ten.
(And buyers don't have reserve prices. That's for sellers.)
6) The effects of could be eliminated with more rapid Ebay processors. If Ebay had the infrastructure of the NYSE, it seems the effects would vanish. Purchase prices would equilibrate to reserve prices.
Not at all relevant.
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