[Exhibitman]

Originally Posted by Snowman

I find it fascinating from a game theory perspective. I enjoy the mathematical nature of game theory and solving for optimal strategies from a business perspective.

As a buyer on eBay, I will often place snipe bids on an item that far exceeds their market value just to ensure I win that item (although I'm selective about which auctions I employ this strategy on). Obviously, it comes with risk since if others utilize the same strategy, it can be costly. There are a few times where I've had to overpay for an item, but surprisingly, it's an extremely rare occurrence (probably somewhere between 1-3% of the time). There are also a few times where my bid has cost someone else with the same strategy a lot of money. It also leaves me open to getting shilled, but as you may have noticed from some of my other posts, I believe this is nearly a non-factor, but that's a topic for a different thread.

From the auction house's perspective though, I think the extended bidding framework yields higher closing prices than the snipe-heavy environment that eBay unintentionally created. Nowadays, eBay is effectively a silent auction site with the vast majority of sports card auctions being won by hidden snipe bids within the final few seconds of an auction.

I also think the buyer's premium aspect is an interesting game theory problem. I think initially, buyer's premiums were introduced as the fee that an auction house would charge for selling an item, but in addition, it has since evolved into an illusion aimed at getting people to bid higher because they prey on people's inability to do math. This is evidenced by the fact that some auction houses will charge a 20% buyer's premium but then turn around and give half of that fee back to the consigner. So it's not just a fee for the auction house, it's a way to trick buyers into bidding higher than they otherwise would have.

Another intersting game theory problem is that of bidding increment options for the buyer. Some auction houses will allow you to bid in $100 or $250 increments when the current bid is $6,000, whereas the next minimum bid at another auction site is in $1000 increments, forcing you to bid $7,000. This is a double edged sword though, because while you may push the item price higher with larger bid increments, it also comes with the consequence of creating a smaller pool of total bidders who can participate in the extended bidding period because an item might get close to it's full market value after just a handful of bids are placed, causing would-be participants to bow out of the auction before it enters extended bidding. I actually use this strategically to my advantage in the early stages of an auciton if it's an item that I really want. Bidders will often just place one bid on an item in the early stages as a way to sort of bookmark them for the extended bidding period, and not place another bid until the "real" auction begins. But this strategy allows room for more extended bidding participants. Whereas if two people "go at it", bidding each other up back and forth in the early stages, until the item is near its full market value, then it discourages other people from participating in extended bidding. Thus, once the extended bidding session begins, I might only be competing against one or two other bidders instead of 10 or 15.

I'm a game theory nerd, so I could go on about this stuff for hours, but I think this post is long enough already lol.

The weakness of game theory alone (I was a big game theory guy in college in poli sci) is that it assumes a rational and calculating player who will act logically and in his own best interests. People, however, have psychological tendencies and prejudices that are irrational and do not factor into a logical game theory, like a tendency to prefer round numbers (why is 3000 hits so acclaimed versus 2900 hits? because people like round numbers), make groups of non-related items, or lack of ability to solve a multiple-variable equation. Even calculating a percentage increase with a corresponding BP increase (which is really just a multiple-step multiplication problem) puts half the population into the fetal position. i think the more complex bidding rules can even cause the more math-challenged to bid higher because they can't really solve the problem of what they are going to pay.

i don't think some of the AHs do a good job of understanding their bidders' psychology. For example, if a certain % of your customers have to stay in budget, it means that they may be knocked out of some items in OT by deep pocketed players. If every auction has a 'jungle' OT where anyone who has bid on anything can bid on everything, then everyone who has to watch a budget can reallocate their resources to secondary or tertiary items, especially items that close with no bids. I am always stunned that items with no bids close at the end of regular time. Why not leave them up so people who lose on a bunch of other stuff can bid on them rather than passing the lot?