Snipers, Shills, and Sharks: eBay and Human Behavior
Ken Steiglitz, Princeton University Press, 2007
New Literature
U. Simonsohn & D. Ariely,
"When Rational Sellers Face Non-Rational Buyers:
Evidence from Herding on eBay,"
SSRN Working paper, Feb. 2007.
The herding behavior in the title is the tendency of
bidders to prefer auctions with more bids, given
that they have a choice among many auctions of
virtually identical items. This gives sellers
the incentive to lower starting bids to attract more
early bidding. The "non-rational" aspect of this herding
arises because buyers tend to stick to the auctions with many
early bids, even though they turn out to be more costly
for them in the long run. This is an excellent empirical study,
with lots of harvested data.
Simonsohn & Ariely (2007) use data for a perfect commodity item,
the mass-produced, readily available, perfect-condition DVD.
I think it's important to distinguish between these kinds
of items and unique items like ancient coins, which are
one-of-a-kind, hard-to-find, and almost never perfectly preserved.
Different kinds of items attract different kinds of buyers and sellers
with different ranges of experience and incentives. Antiques, for example,
attract more late bidding than commodity items because there is a
strong incentive to hide interest—see Roth and Ockenfels (2002) and
Wilcox (2000), which I discuss on p. 43 of Snipers.
Sniping is not an important issue in Simonsohn & Ariely (2007).
They do mention (p. 22-3, under "Alternative Explanations")
the possibility that snipers may decide to snipe early on,
and are naturally drawn to the auctions with low starting
bids. They give data (Fig. 7) that suggests that this is
not a big effect in their study.
Their paper fits in my book nicely: One of my main themes is
that the seller should lower reserves (starting bids)
to attract more bidders (see, for example, Snipers, p. 107:
"The overriding principle is to attract bidding.")