Does It Pay Off to Bid Aggressively? An Empirical Study

We empirically investigate the payoff of signaling through aggressiveness in an online auction. To address our research question, we use a unique and very rich dataset containing actual market transaction data for approximately 7,000 pay-per-bid auctions. Our research design allows us to isolate the impact of aggressive bidding, used in an attempt to signal a high valuation to deter other auction participants, on the probability of winning an auction. We analyze more than 600,000 bids placed manually by approximately 2,600 distinct auction participants. We find a strong and significant positive effect of aggressive bidding on the total number of bids placed, and on the total number of participants in an auction. The strong and significantly negative effect of aggressive bidding on the individual probability of winning an auction supports the finding that aggressive bidding is ineffective as a strategy for deterring competitors in an online auction.

[1]  I. Mazin,et al.  Theory , 1934 .

[2]  R. Cassady.  Auctions and Auctioneering , 2023 .

[3]  J. Hausman.  Specification tests in econometrics , 1978 .

[4]  Cheng Hsiao,et al.  Analysis of Panel Data , 1987 .

[5]  P. Cramton.  The FCC Spectrum Auctions: An Early Assessment , 1997 .

[6]  Kent D. Daniel,et al.  A Theory of Costly Sequential Bidding , 1998 .

[7]  C. Avery,et al.  Strategic Jump Bidding in English Auctions , 1998 .

[8]  José M. Vidal,et al.  Agents on the Web: Online Auctions , 1999, IEEE Internet Comput..

[9]  Axel Ockenfels,et al.  Online Auctions , 2006 .

[10]  Jeffrey M. Wooldridge,et al.  Solutions Manual and Supplementary Materials for Econometric Analysis of Cross Section and Panel Data , 2003 .

[11]  Michael Wooldridge,et al.  Econometric Analysis of Cross Section and Panel Data, 2nd Edition , 2001 .

[12]  Alok Gupta,et al.  Insights and analyses of online auctions , 2001, CACM.

[13]  A. Roth,et al.  Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet , 2002 .

[14]  Alok Gupta,et al.  Replicating Online Yankee Auctions to Analyze Auctioneers' and Bidders' Strategies , 2003, Inf. Syst. Res..

[15]  Stephen J. Rassenti,et al.  Theory, experiment and the federal communications commission spectrum auctions , 2003 .

[16]  Ravi Bapna,et al.  When snipers become predators: can mechanism design save online auctions? , 2003, CACM.

[17]  DeGross.  Errata Notes: User Heterogeneity and Its Impact on Electronic Auction Market Design: An Empirical Exploration , 2004 .

[18]  Charles R. Plott,et al.  The simultaneous, ascending auction: dynamics of price adjustment in experiments and in the UK3G spectrum auction , 2004 .

[19]  The Role of the Bidding Process in Price Determination : Jump Bidding in Sequential English Auctions , 2004 .

[20]  Eric T. Anderson,et al.  Long-Run Effects of Promotion Depth on New Versus Established Customers: Three Field Studies , 2004 .

[21]  Robert F. Easley,et al.  Jump Bidding Strategies in Internet Auctions , 2004, Manag. Sci..

[22]  Timothy C. Salmon,et al.  A Theory of Jump Bidding in Ascending Auctions , 2004 .

[23]  Timothy C. Salmon,et al.  An experimental test of alternative models of bidding in ascending auctions , 2005, Int. J. Game Theory.

[24]  R. Isaac,et al.  Silent Auctions in the Field and in the Laboratory , 2005 .

[25]  Robert J. Kauffman,et al.  The effects of shilling on final bid prices in online auctions , 2005, Electron. Commer. Res. Appl..

[26]  J. Neuhaus,et al.  Fixed Effects Regression Methods for Longitudinal Data Using SAS , 2006 .

[27]  Jeffrey C. Ely,et al.  Sniping and Squatting in Auction Markets , 2009 .

[28]  Johannes Hörner,et al.  Costly Signalling in Auctions , 2007 .

[29]  Yaron Raviv.  The Role of the Bidding Process in Price Determination: Jump Bidding in Sequential English Auctions , 2008 .

[30]  Sven Schreiber,et al.  The Hausman Test Statistic can be Negative even Asymptotically , 2008 .

[31]  Oliver Hinz,et al.  The Impact of Information Diffusion on Bidding Behavior in Secret Reserve Price Auctions , 2008, Inf. Syst. Res..

[32]  Alok Gupta,et al.  Overlapping Online Auctions: Empirical Characterization of Bidder Strategies and Auction Prices , 2009, MIS Q..

[33]  Elena Katok,et al.  The Effect of Timing on Jump Bidding in Ascending Auctions , 2007 .

[34]  Mohammad S. Rahman,et al.  Technology Usage and Online Sales: An Empirical Study , 2010, Manag. Sci..

[35]  J. Carpenter,et al.  Jumping and sniping at the silents: Does it matter for charities? , 2011 .