Wednesday, June 10, 2015

Is sniping bad for eBay? New paper by Bakus, Blak, Masterov and Tadelis

Is Sniping A Problem For Online Auction Markets? by Matt Backus, Tom Blak,  Dimitriy V. Masterov, and Steve Tadelis

Abstract: "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. Roth and Ockenfels (2002) and Bajari and Hortacsu (2003) conjecture 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 also consider an alternative explanation, rooted in the behavioral literature on the endowment effect. Bidders may gradually develop an attachment to the object while they are the high bidder, implying that the regret should increase with time spent in the lead. We show that the two narratives are econometrically separable,
and estimate them using a carefully selected subset of auctions from"

They find that first-time bidders who are outbid in the final seconds of an auction are less likely to return to eBay: here's a graph of the probability of not returning, as a function of how close to the end of th auction the first time bidder was successfully sniped...

They conclude: "As a result, sniping has a negative impact on the growth rate of the auction platform."

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