Auction Misbehaviour
Several people may want to cheat in an acution:
- Seller
- Auctioneer
- Buyer
Sometimes the seller is also the auctioneer.
Second Price Sealed Bid Cheating
Consider the following cheats:
- The auctioneer could drive up the price by faking a higher second bid.
- The seller could drive up the price by bidder themselves, an amount they expect to be second.
- Multiple bidders could collude by asking other to lower their bid.
Additionally anyone could bribe anyone else to complete these actions.
First Price Sealed Bid Cheating
With this types of auction, neither the auctioneer nor seller can drive up the price.
- Some bidders could try to bribe the auctioneer.
This method is overall more resistant to cheating.
Other Factors
People may change the way they bid based on the following factors:
- Expected price.
- Possibility of cheating.
and more:
Synchrony
Some autions require all participants to be present at the same time:
Synchronous:
- Japanese Auction
- Dutch Auction
- Some kinds of English auction
Asynchronous:
- Sealed Bid
- Other kinds of English auction
In e-commerce, asynchronous auctions are easier to implement.
Time
Some auctions take longer than others:
| Type | Time |
|---|---|
| Dutch | Famously quick. |
| Japanese | Can be quick. |
| English | Rather slow. |
| Sealed Bid | Variable but tend to be longer. |
Trust
Auctions work better if the auctioneer is trusted:
- The auction should be transparent and simple.
-
The implementation should not hide too much from the bidders.
For example the auctioneer could read all the prices in a sealed bid auction, instead of just saying who won.
Price Information
During the auction, you may learn more about the item’s value:
- Ideal agents are not affected as they know the item’s worth.
- Realistic agents may have their value influenced by the current bid.
Irrational Bids
Some auctions types can promote the following:
Irrationally High Bids
English auctions are good at making people overbid due to:
- Small increase increments (making it feel like you’re spending less).
- Easy to underestimate other bidder’s willingness to raise.
All-pay auctions also promote overbidding.
Irrationally Low Bids
Second-price sealed bid:
- You should bid your value instead of what you hope to pay.
Inexperienced buyers tend to bid lower than their value.
Notes on these Factors
The importance of each factor depends on what is being sold and to whom:
- Time is more important for relatively low value auction.
- Synchrony is generally less of an issue for high value items.
- Irrationality and complexity are less important in B2B as you are likely to have trained bidders.