Forward-Looking Bidding in Online Auctions

Abstract

the two anonymous JMR reviewers, and seminar participants at several marketing departments around the country, where he presented a version of this article in 2002. ROBERT ZEITHAMMER*At Internet auction sites, such as eBay, nearly identical goods are often sold in a sequence of auctions, separated by small amounts of time. Upcoming auctions are announced several days in advance, so buyers can benefit from forward-looking strategies that take this information into account. This article develops a model of such bidding, provides empirical evidence of the model's relevance to actual behavior on eBay, and discusses the general implications of forward-looking bidding for sequential, auction-driven marketplaces.

Sequential auctions with randomly arriving buyers

“…Sailer (2006) and Zeithammer (2006) both conduct empirical examinations of eBay auctions while taking into consideration the sequential nature of that market. Although the latter is differentiated by the introduction of an assumption that buyers are able to observe their valuation for some upcoming objects, both authors assume a fixed number of competing buyers in each period, and therefore are unable to account for fluctuations in market conditions and competitiveness.…”

Internet Auction Features as Quality Signals

“…Additional research might consider private-value auctions and compare them with affiliated-value auctions to better understand the role of the Internet auction indicators. Second, it would be worthwhile to study the dynamics of bidding behavior across multiple auctions over time (e.g., Zeithammer 2006Zeithammer , 2007. For example, how do forwardlooking bidders revise their bidding strategies when they observe multiple listing of similar items at the same time?…”

Bidding behavior in dynamic auction settings: An empirical analysis of eBay

“…The authors show that in equilibrium, buyers always submit their bids at the last minute of the auction. In another study, Zeithammer [26] characterizes the eBay environment as an infinite-horizon model of auctions in which bidders are forward-looking and base their actions on information about future auctions. He shows that buyers lower their bids when they expect future auctions offering similar items.…”

“…In our analysis, we combine the forwardlooking bidder behavior as in Zeithammer [26], with the buyers having perfect memory as in 4 See [3], [16], and [22] for a comprehensive summary of recent research in economics and information systems. 5 Some of the papers studying static online auctions include Budish and Takeyama [6], Roth and Ockenfels [24], Bajari and Hortacsu [2], Ockenfels and Roth [20], Reynolds and Wooders [23].…”