by Claudia Lai
Abstract
Sniping is a prevalent phenomenon in eBay auctions, which have a fixed end time. Such
practice seems apparently inconsistent with standard auction theory – last minute bids are
received with reduced probability, and should rationally be submitted earlier – yet
previous literature has shown that bidders typically do not engage in early bidding, or if
they do, submit low valued bids that they then raise at the last minute. Modeling of the
sniping strategy in a game theoretical framework has been limited to games under
abstract assumptions not applicable to the conditions under which the eBay bidding game
is typically played. This paper intends to carry out analysis within a more general, more
applicable framework, and finds that sniping is a collusive strategy that players engage in
to prevent price inflation of an auctioned item, and weakly dominates engaging in
bidding one’s valuation early, so long as late bids are received with sufficiently high
probability.
Professor Daniel Graham, Faculty Advisor
JEL Codes: C57
