Auction sniping

Auction sniping is the process of watching a timed online auction (such as on eBay), and placing a winning bid at the last possible moment (often seconds before the end of the auction), giving the other bidders no time to outbid the sniper. Some bidders do this manually, and others use software designed for the purpose. A bid sniper is a person or software agent who performs auction sniping.

There are also online sniping services, where the software agent is run from a website rather than the sniper's own computer. This decreases the failure rate of the snipe, because the website is expected to have more reliable servers that might be quicker to react.

Legality and acceptance by auction sites

While auction sniping is frowned upon by some people, it does not break any of the rules established by eBay. However, eBay Germany did ban sniping services in 2002 [ [http://www.auctionbytes.com/cab/abn/y02/m10/i25/s02 eBay Germany Bans 'Sniping' Services ] ] .

A few other auction sites (such as iGavel, and the New Zealand auction site TradeMe) automatically extend the bid deadline by a few minutes if a bid is placed in the last moments of the auction to give other buyers time to react. Another possible method of sniping prevention is to end the auction at a random time (i.e. ending the auction at an undisclosed time in the last hour).

Uses of bid sniping

Experienced bidders of online auctions with fixed ending times often prefer entering bids late in the auction to avoid bidding wars (multiple rounds of bidders each increasing their maximum bid to temporarily regain "current highest bid" status) or bid chasing (where the presence of an existing bid encourages others to bid on the same item).

Economic analysis of sniping(Roth and Ockenfels, 2000 [Citation
last1 = Roth | first1 = Alvin E.
author1-link =
last2 = Ockenfels | first2 = Axel
author2-link = Axel Ockenfels
title = [http://ssrn.com/abstract=232111 Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet]
journal = NBER Working Paper No. W7729.
year = 2000 ] )suggests that it is a rational gain-maximizing (i.e., price-minimizing) strategy for bidders in auctions which fulfill two criteria: 1) the end time is rigidly fixed (such as those on eBay), and 2) it is possible to gain additional information about the "true" value of the item by inspecting previous bids. For example, a novice antiques buyer may prefer to bid in auctions which already have bids placed by more experienced antiques buyers, on the grounds that the items which the experienced buyers are interested in are more likely to be valuable. In this case, more informed buyers may delay bidding until the last minutes of the auction to avoid creating competition for their bids, leading to a lower winning bid. Analysis of actual winning bids on eBay(Yang and Kahng, 2006 [Citation
last1 = Yang | first1 = I.
last2 = Kahng | first2 = B.
title = [http://link.aps.org/doi/10.1103/PhysRevE.73.067101 Bidding process in online auctions and winning strategy: Rate equation approach]
journal = Physical Review E
volume = 73
number = 6
pages = 67101
year = 2006 ] )suggests that winning bidders are more likely to have placed a single bid late in the auction, rather than placing multiple incremental bids as the auction progresses.

Objections to bid sniping

Sellers generally object to bid sniping, since widespread use of last-minute bidding reduces the number of successful bids (since some last-second bids may not be transmitted to the auction software before the auction closes due to delays in the system or other technical problems), reduces competition between bidders, and leads to a lower final price for the item. Snipers counter that if the practice were outlawed they would not bid and that the final price would therefore be lower than the sniping bid.Fact|date=April 2007

Non-sniping bidders object to sniping, claiming that it is unfair to place bids at a point when it is impossible or unfeasible for other bidders to evaluate and possibly counter the bid, causing them to lose auctions even though they would have been willing to meet the winning bid amount. Note that this is an economically irrational objection in the case of eBay, whose proxy bidding system is designed to allow bidders to specify the absolute maximum they are willing to bid on an item (i.e., an "economically rational" bidder will never raise their bid, since their first bid is also their maximum bid). However, if maximum bids are distinguished by marginally insignificant amounts (e.g., $0.01 in the case of eBay auctions) it may be difficult for a bidder to rationally determine their maximum bid within the proxy bidding system (see the Sorites paradox).

Economically rational bidders still object to sniping when multiple, identical items are listed, as this ensures they must wait the largest possible amount of time to find that their maximum bid has been exceeded (instead of possibly being able to immediately bid on one of the other items).

Deterrents

Automated bid sniping software can be defeated by requiring bidders to enter numbers presented as a distorted image prior to entering their bid, a CAPTCHA system that Eric M. Jackson stated was invented by PayPal. This ensures that all bids are entered manually but excludes people with visual disabilities from making a bid.

Some on-line auction systems attempt to discourage sniping (manual or automatic) by automatically extending the auction time if a last-minute bid is placed. This approach leaves all bidding open, and allows any bidders that are watching during the final few minutes to counter-snipe any snipers. It can also lead to last-minute automated out-of-control bidding wars between snipers, which could extend the bidding time long beyond what the seller desired. Any site which implements a limit to the number of time extensions allowed simply causes a final extension snipe.

Some auction systems, such as eBay, allow bidders to end an auction early by paying a predetermined final price for the item (generally substantially more than the minimum bid). This discourages sniping because another bidder can simply purchase the item outright while the sniper is still waiting for the right moment to bid. In eBay this Buy it now option disappears after the first regular bid is placed, and so the deterrent only relates to items that have yet to garner any bids. Most snipers realize that they can simply place a very low bid on the item and make the Buy it now option disappear, clearing the way for a last second snipe and preventing any other potential bidders from ending the auction early by buying the item at the Buy it now price.

Another method to discourage snipers is to allow bidders to place a hidden or proxy bid, indicating to the system, but not the sniper, the absolute maximum they would be willing to extend their original bid, but without actually placing a bid above the original amount unless another person bids against them. This system (which is used by eBay) can still be beaten by the sniper increasing their bid to an amount larger than the proxy bid ; thus, the sniper must be willing to pay more than the previous bidder's hidden maximum. Proxy bidding also discourages 'bidding wars', but on the other hand it can encourage 'opportunistic' bidding on low-priced items, which may sometimes be beneficial in getting bidding started and escalating the price, and which contributes to the 'energy' of an open auction.

Properly implemented, proxy bidding would be considered a type of closed auction system, where bidders cannot see the current highest bid until they've actually out-bid it, and where winners pay an incremental amount more than the second highest bid. Proxy bidding requires the wise bidder to know in advance the value of an item and their limit for bidding on it, and to have trust in their auctioneer not to disclose this limit, even accidentally.

However, improper implementation of proxy bidding introduces a new danger, a fraudulent practice known as maximum bid fishing (a type of shilling). For some implementations of the proxy system (such as the one used on eBay), although the server does not disclose the current maximum bid, it will indicate when a previous maximum has been outbid. This opens a loop-hole which allows an agent for the seller to incrementally escalate their bid until they reach (and narrowly exceed) the current hidden maximum. They then hope to get one more bid increment out of the original bidder, thereby successfully reaching (or actually slightly exceeding) the bidder's original maximum hidden bid. The danger to the seller in this case is that the original bidder may not choose to increase their bid, leaving the seller with a futile transaction (selling the item to themselves) which will still incur a fee from the auction service. However, it is possible for the seller to avoid this fee by submitting a mutually agreed cancellation from the buyer and seller application which will result in the waiving of the auction fee as well as a 'free relist' credit.

References

News reports

* [http://www.newscientist.com/article.ns?id=dn9398 Mathematicians snipe to win on eBay (23 June 2006, NewScientist.com news service)]
* [http://www.newscientist.com/article/mg19125585.800.html Play it cool if you want to win an online auction (01 July 2006, From New Scientist Print Edition.)]
* [http://www.seedmagazine.com/news/2006/07/best_to_bid_late_on_ebay_1.php Best to bid late on eBay]
* [http://www.usatoday.com/tech/science/columnist/vergano/2006-06-25-ebay-physics_x.htm On eBay, it pays to snipe (Posted 6/25/2006 6:21 PM ET, From USATODAY news)]
* [http://www.omniscienceisbliss.org/sniping.html Why sniping with one's maximum value is the optimal bidding strategy for eBay (27 April 2004)]