Penny Auction Strategy?

After learning about the auction process and how certain strategies are considered dominant, I thought of the pay per bet auction sites, and how they are different.  Traditionally in an auction, the bidders are expecting to pay somewhere close to their value for the object.  Whether it’s a first price or second price auction, the bidders are usually not expecting to pay a price too far off from their value. Yes there are exceptions, but for the purpose of this argument we will pretend everyone is playing their dominant strategies.

Looking at websites like QuiBids, it seems bidders are expecting to pay prices significantly below the actual value of the object.  Instead of bidding a price, the website charges pennies on the dollar to bid each time as the price gradually increases.  This causes mass amounts of bids to come in, driving up the price.  However, since the auctions are timed, most of the bidding takes place in the last few minutes of the auction.  It seems in this case that luck would be the only factor driving the auction, and that strategy is merely an illusion to attract new bidders to the website.

The website draws in so many bids, which cost the bidders a QuiBid penny per bid, which is actually close to $0.60, that it is able to sell the items for extremely cheap.  However, there is high probability when placing a bid that you will have to place multiple other bids in order to win, therefore driving up the price.  Whether you win or lose, you still have to pay for the amount of bids you place.  This makes it seem that strategy for this type of auction relies more on timing.  It seems that bidders would be better off waiting until the auction is near close to bet, or to wait until the item reaches a price that others may find high and then bet.  Each relies on the bidder correctly timing and anticipating the move of the other player.  I find this topic very interesting because it just seems so different from the auctions we have discussed in class.

Does anyone have any ideas to a potential dominant strategy in this type of auction?  Is this type of “auction” really an auction?  I would love to hear everyone’s opinions. Below are some links to read up on the topic.

http://www.quibids.com/en/

http://en.wikipedia.org/wiki/QuiBids.com

http://technorati.com/business/finance/article/quibid-awards-ipad-after-6405-bid/

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1 thought on “Penny Auction Strategy?”

  1. As one who was unsure of the both the legitimacy and nature of QuiBids, the nature of the auction site has become more apparent by the attached piece. In this kind of auction, truly the dominant strategy decided amongst all players is to hold off on bid upping until the last few minutes of the auction; this ensures a cheaper price for everyone involved despite there being only one winner. While it still sounds like my chances of winning a QuiBid auction are entirely based on luck, the structure of the auction is most definitely appealing. The value of the product is essentially paid for by all bidding players, allowing for the sole purchase to be awarded at a significantly lower price for the individual. In a weird way this is a cooperative game to play by all agreed players.

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