eBay's bidding strategy mystery

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I've always be fascinated by the way most eBay auctions end. Most of the time, in the first few days of an auction (they generally last 7 days) a 2 or 3 people will put modest bids, then in the last 1-3 seconds of the auction, 5 people will rush to try to outbid each other and bid multiple times.

However, it doesn't need to be like this, there's no reason for people to bid more than once per auction because eBay will automatically bid for you up to the maximum amount you specified. Maybe people don't understand how this works, but if everyone entered their actual real maximum bid when they see an item they're interested in, there would be no last second races to outbid each other.

How eBay's bidding works

Let's say you see an item you really want listed at 99 cents. Based on the shipping costs, condition of the item and other auctions for a similar item, you determine that the item is worth it only up to a maximum of $20. So you place your bid and enter 20 as the amount. eBay will automatically place a bid for you at 99 cents. Then, every time someone else places a bid lower than yours, eBay will automatically place a new bid for the same amount + an increment based on the current high bid. As long as no one bids over $20, you will be the highest bidder and if no one else bids more than, let's say, $15, the item will be yours for $15.50. If someone bids over $20, then the item was clearly worth more to him than to you and it wasn't worth it anymore.

Learn to ignore your emotions

Why then do people bid multiple times? They've already bid the highest amount they thought the item was worth, why bid more? Of course, psychology and emotions have a lot to do in this case. When nearing the end of an auction, you start feeling the thrill of the game and want to win it, otherwise you might have to wait a few more days/weeks/months until you can get your hand on a similar item. Sellers often profit from this because an item will fetch a higher price than it should because you're just 50 cents away from winning, surely $20.50 isn't much more than $20, right? Then why didn't you bid $20.50 in the first place? Don't let your emotions influence you and try to enter a reasonable amount as your first bid.

When to bid at the end of an auction

I can see a scenario when people would bid near the end of an auction, however this would rarely apply to last seconds bidding wars. When you have a choice of multiple equivalent items ending a few hours or days apart, you only want to bid on the item ending first and then move your bid on the next item until you win it. From my own experience, as a seller it's better to be first then second because the bidding wars will be more aggressive (there's at least 1 less player in the following auctions).

Limiting the number of bids

I would be interested to see what would be the effect of limiting the number of bids per person per auction to 1 (you can only bid once per auction). When interested in an item, you would only get one chance at bidding. Would people bid more to be sure to win the item? Or would the items sell for less because emotions would not get in the way? Or would everyone wait at the last second to put their bid in? eBay could automatically add a couple of minutes every time a bid is entered to prevent such problems though.

What has been your experience with eBay regarding bidding wars?

Michel Billard's profile picture

A web developer's musings on software, product management, and other vaguely related topics.