Let's set the scene. I tried to buy a fluffy toy on eBay and I was leading the auction until the very last minute when some dastardly sniper outbid me. I never had a chance to respond. And now they're sleeping soundly with my toy whilst I cry myself to sleep nursing my burnt fingers.
It's a touching tale, although completely fictional, and one that suggests sniping is a winning strategy. The logic for sniping is presented more formally below:
If you are bidding on an eBay item and:
- You know the value of the current highest bid at all times
- You have a window of time open only to you and no other bidders to place a bid at the end of the auction
- You are willing to pay more than the current highest bid during this window of time
Who could argue with that? This logic seems watertight. And it is.
But one of these steps does not apply to eBay bidding. Of course the window of time open only to you is not real: anyone can place bids right up to the end. It is simply a hypothetical construct to mark you out as a sniper. It is approximately correct because you are dedicated (or have electronic help) while your opponents are sluggishly getting on with their lives instead of focussing on the auction.
But I digress, because it is line 1 that is the real problem.
The "current highest bid" shown on an eBay item is not really the highest bid. It is the second highest bid, or the starting price if this is higher. There are some small complications (see below) but this captures the main features.
Example: If you have bid £5 on a newly-listed item with a starting price of £2 then you will be the highest bidder. If the auction were to end now you would win and pay £2 for the item. If I come along and bid £3 then you will still be the highest bidder but the price you pay will rise to £3 (you "own" the £3 bid because you bid before me). If I bid £10 then I would be the highest bidder but I would only pay £5.10 were the auction to end immediately. In all the above cases only the current highest bidder knows the bid that they have placed. Everyone else must make do with the second best.
The natural extension to this is that it doesn't matter when I bid because I will only win the auction if I bid more than you. But unfortunately I don't know what this amount is. The only way I can find out is to outbid you and become the highest bidder, which is not consistent with a sniping strategy. In other words: sniping doesn't win auctions.
The argument I've constructed above has flaws. It is similar to a straw man in the sense that I have presented my own version of the sniper's logic and then knocked it down. But I think it does cast doubt on the prevailing wisdom.
So it would be easy to say that sniping is worthless. But there is a more subtle argument in favour of it. Sniping is very similar in nature to bluffing in poker, although in some ways also its opposite.
By bidding on an item you are indicating that you feel it has some value, which is a powerful statement in a market where all you get is a small picture and a biased description. This signal may alter other bidders' perception of the value of the item, making them more inclined to bid and therefore drive up the price. By sniping you deprive others of this information, hopefully saving you some money.
Logically this makes it best to snipe on items with no bids since you are trying to discourage other bidders from taking part. It feels wrong to call it sniping when you aren't sniping anyone, which is why I don't think this is what snipers are trying to do.
This logic is the reason why when I bid on eBay I follow the following process:
- Pick the item I want
- Estimate its value to me
- Bid this amount
- Walk away and wait for the email
So the argument you present is indeed a straw man. The goal of sniping is not to win the auction per se, but to try and win the auction even if someone else would have been willing to bid more for it.
ReplyDeleteHow does that work? Well there are 3 strategies commonly employed by people when bidding on eBay: Maximum Bidding, Incremental Bidding and Sniping.
Maximum Bidding is the strategy you suggest at the end of your article. You choose the maximum price you are willing to pay for the item, you put that into eBay's proxy system, and you wait for your result.
Incremental Bidding: in this 'strategy' you don't enter your maximum bid, instead you enter a bid lower than your true maximum. If your bid becomes the highest bid you stay put, if someone else bids higher you keep increasing your bid until either the auction ends or you reach your true maximum.
Sniping. Sniping is similar to Maximum Bidding, you enter the maximum price you are willing to pay for the item. The difference is that you enter the bid at the last moment, giving people no chance to respond to your bid.
Now in terms of getting the item at the lowest price, sniping is the optimal bidding strategy. Why?
Well if everyone employed the 'Maximum Bidding' strategy then sniping would indeed be a waste of time. Sniping is no more effective against a Maximum Bidder than any other strategy: whoever has the highest maximum wins. However, not everyone does use Maximum Bidding, many people use Incremental Bidding, and against Incremental Bidding Sniping is a more effective strategy than Maximum Bidding.
When you employ the Sniping strategy against an Incremental Bidder there is a good chance you will win the item even if your maximum is lower than the Incremental Bidders true maximum, i.e. you win the auction even though someone else would have been prepared to pay more for it than you. This is because sniping denies the Incremental Bidder the time needed for them to discover their true maximum bid.
In contrast if you employ the Maximum Bidding strategy against an Incremental Bidder you will only win if your maximum bid was higher than the Incremental Bidders true maximum. This is because the Incremental Bidder has enough time to discover what their true maximum actually was. In other words, you only win if you truly are willing to pay more for it than anyone else.
In short:
Maximum vs Sniping - tie: highest maximum wins.
Maximum vs Incremental - tie: highest maximum wins.
Sniping vs Incremental - advantage sniping: may win even if your maximum is lower
So Sniping is the optimal strategy (it either beats or ties every other strategy), Maximum Bidding is next best (it ties all other strategies) and Incremental Bidding is the worst (it ties or loses to every other strategy).
Thanks Tom.
ReplyDeleteI've had time to digest what you wrote and I agree. I think I was writing this from the point of view of the non-sniper rather than in general. If I had the chance to restate my message I would probably say "if you follow a maximum bid strategy you need not worry about snipers".
It's probably worth pointing out that sniping is trivially at least as good as maximum bidding since it is a special case of maximum bidding. The leaves unanswered the question of whether it is worth the effort involved given the special circumstances where it dominates. I suppose the amount of complaining about snipers suggests that there are plenty of incremental bidders around for them to prey on.
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ReplyDeleteYes, people employing a maximum bid strategy need not worry about snipers.
ReplyDeleteIs sniping worth the effort? I guess that depends. Personally I have access to free automated sniping on an always-on computer with a reliable network connection. So I always snipe on ebay, less for profit maximization and more so that I can take part in multiple auctions for similar items without having to worry about ending up winning both auctions. I quite frequently bid on multiple similar items, so this is an important consideration for me.
However if I had to stay up until 3.00AM to put in my bid at auction close then personally I really wouldn't bother and I'd just maximum bid and go to sleep :-)
Speaking from my own (modest) eBay experience many people do bid incrementally and sniping does sometimes save a little money. Although I think the gains are typically not massive, occasionally I do end up getting something for a real bargain price by sniping a (presumably) fairly naive user.