Saturday, March 7, 2015

Sniping on eBay, revisited

Is Sniping A Problem For Online Auction Markets?

Matthew BackusTom Blake, Dimitriy V. Masterov, Steven Tadelis

NBER Working Paper No. 20942
Issued in February 2015
NBER Program(s):   IO 
A common complaint about online auctions for consumer goods is the presence of "snipers," who place bids in the final seconds of sequential ascending auctions with predetermined ending times. The literature conjectures that snipers are best-responding to the existence of "incremental" bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond. As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer's propensity to participate in future auctions. We show the effect to be causal using a carefully selected subset of auctions from and instrumental variables estimation strategy. Bidders respond to sniping quite strongly and are between 4 and 18 percent less likely to return to the platform.

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