Let's Talk Auction Strategy

Ever buy something in an auction? I’d like to read others opinions on how to “play” an auction - any kind of auction. For me:

  • Ebay is NOT a true auction. For me, the only way to play Ebay is with a sniping service. Sniping hides my intentions until the last few seconds, lets me set my absolute maximum price, avoids bidding wars.

  • Online auctions with soft endings. Pretty much a true auction. You sometimes CAN identify other bidders at least as their anonymized ID. Do you put down a big bid up front to establish your level of interest or come in near the end?

  • Live in-person auctions. Do you look at the other bidders? Do your bid big and early or wait to see how high the price is going?

Some interesting game theory here… :slight_smile:

Start low and bid only up to the price you want to pay. If somebody else is wiling to pay more than you, they get the item. Don’t get excited. The amount you’re willing to pay has zero to do with what somebody else is willing to pay. End of story.

Pretty sure that for each kind of auction, there’s a mathematically proven optimal strategy, and there’s not much discussion. For ebay, if you are desperate to win and cost is a secondary consideration, the best way to do that is to bid your maximum amount that you can afford up front, and you’ll automatically outbid any snipers who creep in at the last second. The only people who will beat you are people willing to pay more.

If you’re trying to win, but get it for the least cost, the best way to do that is to snipe, as there’s that chance that someone hasn’t bid their maximum, but you crept in just under the wire and outbid them before they have a chance to outbid you one last time.

There is the concept of a Vickrey Auction, where the winner pays the second highest bid price. The idea is that this is roughly equivalent to the price you would get on an open outcry auction (where the first and second place bidders would bid each other up until the second place bidder gives up, and the first place bidder gets it for some trivial amount over the second place bidder’s maximum bid) but doesn’t punish people for placing their maximum bid early, so there’s no real incentive to snipe.

I disagree. The reason is because other people don’t always bid the most they’re willing to pay, or the amount they’re willing to pay changes when they see that they have a competitor.

There is virtually no benefit to bidding up front. If people think they don’t have competition, they’ll put in much lower bids than they would otherwise, because this idea of “maximum amount you are willing to pay or afford” isn’t really a thing. Think about the maximum you’d pay for something you’ve wanted. Couldn’t you squeeze out a penny more? A dollar more? Most people always can, and that’s why it’s a bad idea to provide others with any more information or time than you have to.

When I watch these storage wars shows sometimes you see people who are interested start bidding very early, which can lead to three or four or more people bidding at the same time so the price goes up a fair amount each round. Other times you see someone who’s interested wait until others seem to be done bidding and then start. I would think the latter is more effective, but hard to know for sure.

Bingo. There’s no real point in “playing” it. There are only a tiny number of strategies – do you bid upward in small increments or large ones? – and, beyond that, it’s just a game.

This isn’t a James Bond movie. It’s just an auction. Yeah, I’d really like that old-fashioned cane-backed rocking chair. $35.00? Well, never mind then: what’s next on the card?

The only “trick” I have ever heard was one used by a friend of mine. He built himself a large country home and wanted old country furniture for it but decided he couldn’t tell what anything was worth. So he went to a few out of the way auctions and identified the dealers, who were each at several. He then, at subsequent auctions, just made the last bid, slightly higher than the dealer’s bid. If he was outbid he just let it go and waited for another similar item.

He didn’t want to buy a shop full of stuff, just a house full but he also wanted to pay less than he would pay at a shop. So he only bid against dealers (although at that time many people at auctions were dealers) and didn’t engage in bidding wars.

It all seemed to work as he planned. He ended up with a house full of terrific colonial furniture bought, according to insurance valuations, for far less than it was worth. I wonder if it would work as well now?

Auctions are not put on as games for your entertainment! They can be a way to obtain substantial bargains or stuff that simply isn’t available from any other source. Almost any sale can be seen as a supply-demand “auction” on some level. In a live auction your $35 chair is just an example of setting a personal maximum. But if you’re hidden in the back of the room and respond immediately to run up the $35 bid, you may have already psyched out your competitor in the front row and you get what you want at your price. I wouldn’t bother with that strategy for a $35 item but I would for a $500 collectible.

Furnishing a home by bidding just higher than the antique dealers is a great idea! Really you’re just doing a high-$$ bulk purchase that most individuals don’t want to deal with - the concept works in a lot of sales venues.

Placing a maximum bid up front is just stupid in my opinion. You’ve laid all your cards on the table and in the Ebay format, another bidder can take the item for only $1 more. Would say, a $100 item not also be worth $101 for most people?

I’m not sure any of you guys would do very well in a 1 on 1 negotiation! I was hoping to stimulate a discussion of live action nuance. :smiley:

Truth. The loser of a bidding war is the guy who “wins”.

I feel like an alien when I read these kind of SDMB threads. I just can’t relate to people who say that they always bid the maximum they are wiling to pay.

If I need something, I buy it. I don’t putz around trying to outbid other people at an auction. Why? Because I need it. I already said that. That doesn’t make me a hero, it just makes me a normal person.

On the other hand I also like sport shopping for things that I don’ need, but want. In that case I’m shopping for bargains and I never set what my maximum price is. I don’t even know what my maximum price is - because I don’t have one. I just make low-ball offers and see what happens. Sometimes I win. If I don’t win I don’t care.

People’s aversion from putting their maximum price down on Ebay as their first bid, despite it not being invoked until it needs to be, is that most people don’t know what the maximum price they’d be willing to pay is. You don’t want to be gnashing and wailing your teeth on every single item deciding if you’d pay $82 but not $83 and having to decide where to stop. So you put in some amount that you know you’re willing to pay, but would consider bidding more if you really thought about it. And that’s what makes sniping viable - all those who didn’t really think about how much they’d be willing to pay lose the item to a price they might have paid if they had thought about it more, but weren’t willing to do the thinking if there was no competition.

Yes, the best strategy for auction on EBay in theory is to determine the absolute most you will pay and enter that as your maximum bid. And if you’re speculating in somewhat fungible items like I was at one point (collectible trading cards), it makes sense to say “I know I will pay exactly $13 for that card and not a penny more - and I will grab all of them that I can that I can manage to get for $13, and if that amount is 0 or 29 I’m fine, because I’ve determined what my price point on that card is for speculation purposes.” But if you’re dealing with somewhat unique items that aren’t going to be listed frequently, you have to do some soul searching before placing the bids, and if you’re furnishing an entire house with purchases like this, you really have to think about your budget. It’s really only on investment-style purchases can you really say what exactly your maximum is.

And if you want exactly one of some fungible item (say, an old vinyl album), you don’t want to be in the position of getting bid up to your maximum on one of such item with the only other person who is willing to pay that much, while they then get the next one that’s auctioned for much less because no one else wanted it that badly. That is, you don’t want to get in a bidding war on a non-unique item if you think you can get that item for less from someone else, but if you place the maximum amount you would pay for the item as your bid, you just might. You might set a bound on what you would pay given what you know of the item’s history, but you don’t want to set the actual amount you would pay for it ignoring what the market looks like. And in such a case where you set a $13 bound but keep losing them for $13.01, you’re going to realize fairly quickly that your $13 maximum isn’t set in stone like it “should be” according to those who just say to always bid your maximum.

Well, actually, yeah, the entertainment aspect of the event is non-zero. (Why else would people pay to watch it on TV?)

I’ll agree this isn’t the biggest part of the event, but it is a part.

Fallacy of not drawing the line. Would you also gnash your teeth if a box of baseball cards went for $83,000 and you had stopped bidding at $82?

If you don’t know your own mind, and don’t have a clear idea of your own resources, then you are liable to manipulation…and one of the functions of the auction format is the manipulation of exactly that kind of ignorance. People get trapped into the “lost cost” fallacy, as if they’d already paid the amount of their bids, and thus needed to “validate” the “cost” they’d incurred.

People with knowledge, especially self-knowledge, are better able to resist such emotional fallacies. They don’t gnash their teeth at having overpaid.

ETA: I don’t think anyone has actually suggested opening with one’s personal maximum bid. That’s bad, because, who knows, the market might be below that. Always open low, and let the bidding go upward. The likelihood of a bargain is small, but it’s non-zero, and it would be foolish to throw away that chance.

You didn’t read my two examples, and are arguing against the first, by pointing out the second one.

What I was saying is that IF you’re solely concerned with winning the auction on Ebay, i.e. you HAVE to have that item, the best way to ensure that you win it within your budget , is to bid the most you’re absolutely willing to bid for that thing under any circumstances. That way, you’ll automatically proxy outbid anyone in your price range, and will win it, provided that nobody else is willing to pay more than you are. If you do this, you WILL beat any and all snipers who try and sneak in under your maximum bid, and the only people who will beat you are those who are willing to pay more up-front by doing the same thing you did. You also won’t pay significantly more than anyone else, if other people aren’t bidding the price up.

But if you’re willing to take a higher risk that you may not win the auction, in exchange for possibly winning at a lower price, then sniping is your best bet.

These are Ebay-style auction specific strategies; they don’t work in things like Dutch auctions, first-price sealed-bid auctions or Vickrey auctions. (Ebay auctions are some sort of weird hybrid of English Auctions and Reserve auctions with automatic bidding thrown in. These strategies also don’t work if the time limit extends after each bid, like some online auctions do.

I’ve bid at a couple of house auctions (at one of which I put in the winning bid), and I’ve observed several other house auctions. At these, the stakes are pretty high, as the price is likely to be some multiple of your annual income. In addition, these are public live auctions, where the auctioneer and the bidders are gathered together so they can all see and hear each other – though many people there are just interested spectators, who have no intention of biddng.

Of course, with these you need to do a lot of preparation in advance, including lining up your house loan, as well as knowing your market, so you have some idea of what the house will sell for as well as how much you want to pay.

My observation is that serious bidders want to bid slowly: either bid a low price at the start of the auction, or wait until other bidders have pushed the price up a bit. The psychology seems to be that they don’t want to look to enthusiastic, as that might encourage other bidders to engage in a bidding war. However, it might also be that they are genuinely reluctant to spend so much money.

I have wondered if an opposite strategy might work: make your low-ball bid early, then whenever someone outbids you, bid again immediately a small increment over them. That way, others know you want to buy the house, but they don’t know how far you will go, so they might want to stay out of a bidding war. Of course, you have to know when to stop: if your limit is $500K, let it go if the bidding reaches $501K. However, I’ve never seen a person use this strategy.

My Mom taught me how to bid at an auction. At the livestock auctions she usually got her purchase and at a fair price even when the day was full of bidding wars.

#1 get there early and look over what is being auctioned off.
2, Pick out what you are going to bid on. If you are going to make only one purchase have several items that you would want picked out.

  1. Make a note of the item number and what your maximum price will be, write it down.

When the auction starts

  1. Never make a bid if two or more people are bidding on a item. Why would you. Wait until only one bidder is still bidding.

  2. When there is only one bidder left look at your notes and the bid is below your maximum bid make you opening bid.

  3. You will probably bid will probably be called and raised. Look at your notes and bid again raising your bid with out going over your maximum.

  4. If your second bid is raised look at your notes and if still below your maximum bid again.

  5. if it is a cattle auction and are raised again drop out. At other auctions limit yourself to only raising your bid 3 times then drop out.

This works for several reasons. You need to figure out what is a reasonable price for what you are purchasing and only pay that. So figure that out first. If the auction has shills or the auctioneer is raising the bids on his own they will learn to back off when you are bidding. If 3 or more people are bidding on anything the price is only going to go up faster with no end until it get down to two bidders. And the big one the professional purchasers will give you respect and not run them up because you did not run them up. In Mom’s case Watsonville Dress beef would not raise my Mom’s bid more than once.

And one more BIG thing be a crowd watcher. Be respectful to those who are respectful to you. And stay away from those who do not know what they are doing.

I was at a police auction once where bikes were being auctioned off. A cheep bike with a lot of bling on it was auctioned. About 6 people were bidding on at a time. It sold for about twice what it would cost if the buyer went to sears and purchased the bike.

This is true, but note that sniping doesn’t increase your risk of not winning the auction by very much at all, and generally does significantly lower the price you’ll actually pay (because most bidders are not rational or don’t have a good idea of what they’d really be willing to pay).

The only cases where sniping with your maximum bid fails to win the auction and putting in your maximum bid early wins are:

  1. Something happens to your internet connection/sniping service and you’re not able to place your bid in time.
  2. Someone else bids before you with a bid that’s within the minimum bid increment of your max bid.

The first can be controlled pretty well. For most people, it’s well below 1%. The second is harder to estimate, but it’s also probably a small single-digit percentage.

In comparison, the gains from sniping are quite large. In my experience, the gains are often more than 10% reduction in the price. For most auctions, most items, sniping has a highly positive expected value.

I did read your examples, and I still think you are wrong. I think you are wrong because you are assuming that people behave like computers and have the discipline to stick to a single price point.

Let’s say you are bidding on an item and the most you’re willing to pay is $100. So you put in a bid of $100 on day 1. Then someone swoops in with one minute left and bids $99.99. You win, right? No. The bidder then thinks, well, I can pay an extra dollar, it’s just a dollar, and then bids $100.99 and you lose.

But let’s say you are sniping. Other Bidder puts in a $99.99 bid with one minute left. Then you snipe him with 5 seconds left with your $100 bid, and Other Bidder has no time left to add to his bid. You win. You didn’t bid any more than you initially intended, but you won.

This fantasy world where people have an exact figure they’ll pay and not a penny more doesn’t exist.

Well, it does in my world. There’s nothing on eBay so important that I can’t lose it over a buck. I’ll always put my maximum bid in and then let the item come or go as it will. I won’t get mad that I lost an item over “only (small amount)”. Bidding “just enough” is only a way to get yourself worked up and either lose your item to stupidity or to pay too much.