The effect of shill bidding upon prices: Experimental evidence

Optimal bidding in auctions from a game theory perspective

“…In conclusion, the incentives of the auctioneer may not be aligned to the interests of the seller. Experimental evidence (Kosmopoulou and De Silva 2007) confirms that shill bidding reduces the seller's payoff, while bidders may be better off, since the bid price is lower and the effect of winner's curse is reduced.…”

Shill bidding: Empirical evidence of its effectiveness and likelihood of detection in online auction systems

“…On the one hand, some studies show that, in equilibrium, the potential that the seller might shill bid causes bidders to protect themselves by bidding less than the optimal bid (Jenamani et al, 2007) which in most models has been shown to be the private valuation of the item for each bidder. Thus, final prices and profits may be decreased (Kosmopoulou and De Silva, 2007) and market efficiency is eroded (Gerding et al, 2007). Other studies, however, show that sellers do profit by shill bidding (Graham et al, 1990;Kauffman and Wood, 2003;Engelberg and Williams, 2009) and that, under some assumptions, no equilibrium exists without shill bidding (Wang et al, 2002).…”

“…Experimental evidence exists that the potential for shill bidding does not cause bidders to avoid the market (Kosmopoulou and De Silva, 2007) and that when shill bidding is allowed and openly conducted, the optimal bid is not reduced (Graham et al, 1990). However, if sellers successfully implement a shill bidding strategy, bidders may pay higher prices than they would otherwise (Wang et al, 2002).…”

“…However, if sellers successfully implement a shill bidding strategy, bidders may pay higher prices than they would otherwise (Wang et al, 2002). Alternatively, it has been suggested that shill bidding may actually benefit bidders by reducing the occurrence of the winner's curse, or the chance that a bidder may end up winning the auction but at a higher price than originally planned (Kosmopoulou and De Silva, 2007). To the extent that bidders decide to place a bid that is lower than the optimal bid due to the potential existence of shill bidding, the risk exists of losing an auction that closes at a price less than the bidder's actual reservation value (Bhargava et al, 2005).…”

“…As noted by several researchers, no mechanism exists by which a seller can credibly commit to refrain from shill bidding (Wang et al, 2002;Chakraborty and Kosmopoulou, 2004;Kosmopoulou and De Silva, 2007). In an experimental setting, there is evidence that shill bidders, when publicly announced, are punished by bidders with a lower price in subsequent auctions (Kosmopoulou and De Silva, 2007). However, no clear public information about which sellers have engaged in shill bidding exists on the major online auction houses.…”