eBay, Fun, and Social Waste
By Arnold Kling
David Weinberger has some thoughts about eBay.
I’ve lost bids to auction snipers. As a customer, I feel cheated, even though, of course, I could take a sniper’s eye-view of the transaction. Even if letting robots game the auction doesn’t affect the integrity of the marketplace, they sure take the fun out of it. And that’s part of eBay’s value as well.
I’ve always wondered why eBay doesn’t use second-price auctions. In a second-price auction, everybody bids the most that they would pay. But the winner only pays the second-highest price. So if I bid $10.02 and I win, but the next highest bidder bid $9.75, then I pay $9.75. Vickrey has a famous paper on the efficiency of such auctions. Because your incentive is to bid your reservation price, a second-price auction actually gets the same revenue as a first-price auction.
The advantage of the second-price auction in the context of eBay is that you don’t have to keep checking to see if someone matched your bid. You just bid once, and you’re done with it.
But David probably would say that what I consider a feature would in fact be a bug. That is, part of the fun (for some people) in using eBay is watching the price change and seeing whether their bid will win.
If they ever start an auction site for soulless dorks who don’t want to be entertained by auctions, they can adopt the Vickrey auction. I’d go for it.
Update: Several commenters point out that “proxy bidding” on eBay works like a second-price auction, and Monte pointed to this paper that ties this to Vickrey auctions. But then I don’t understand why David Weinberger gets annoyed by the “sniper” phenomenon.
For Discussion. Do Vickrey auctions work as well in practice as they do in theory?