Bid late and win big—that’s the conclusion of two Korean researchers who studied online auctions on eBay and developed an equation that describes the relationship between bidding behavior and item winning.
People who bid just a single time, during the last moments of an eBay auction, are the most likely to win, say Inchang Yang and Byungnam Kahng, physicists at Seoul National University in Korea.
In a paper published in the June issue of Physical Review E, Yang and Kahng present an equation for the pattern of bids made over time, a function that obeys a power law distribution. Graphically, that pattern has a “fat-tail distribution,” indicating that the total number of bids increases more quickly near the end of the auction than at the beginning.
“Bidders create a new, self-organized pattern even though no one controls their activities,” Kahng said via e-mail.
Yang and Kahng also determined the mathematical relationship between bid frequency and winning. They discovered that auction winners are most likely people who bid infrequently—bidding just a single time, at the end of the auction (a strategy known as “sniping.”)
The Korean team’s results are consistent with findings made by Harvard economist Alvin Roth in a 2002 paper published in American Economic Review. Roth determined that late bidders were often experienced eBay users, who employed sniping as an established tactic.
Ebay’s auctions have a set end-point, allowing people who submit bids at the last minute to avoid giving other bidders a chance to respond with a higher offer. According to Roth, sniping also prevents bidders who are knowledgeable about the value of an item for sale from tipping off others that the item might be worth a lot of money.
“There’s a good reason to bid late,” Roth said.
There are also risks to banking on a last-minute attempt. Such bidders may find themselves unexpectedly busy when the auction closes or unable to get a very late bid to transmit successfully.
Still, sniping remains a popular—and bankable—winning strategy, Roth said.
“People’s behavior,” he said, “does respond to the detailed rules of the market, often in quite understandable ways.”
Originally published July 10, 2006