6 ms·

When eBay first started, I loved the idea of auctions as a way to set market prices. From an economic and game-theory perspective, it is so optimal! Clearly as

by whack 7y ago

When eBay first started, I loved the idea of auctions as a way to set market prices. From an economic and game-theory perspective, it is so optimal! Clearly as later examples like Amazon have shown, auctions don't make sense for most product categories. I believe this is mainly due to psychological reasons. Decision-fatigue is a real thing. People dislike having to think hard. In a fixed-price sale, the buyer just has to ask themselves one yes/no question: "Would I be happy buying this item for $X?" This is a very simple question to answer. In a sealed-bid auction, people have to ask themselves "What $X am I willing to pay for this item", which is a tremendously more complex question to answer. In fact, from a game theory perspective, you should never put in a bid that you're "happy with". You should put in a bid where you're exactly neutral between buying-vs-not-buying. Otherwise, you're leaving money on the table. This is asking people to make purchasing decisions whose outcomes will leave them explicitly not happy - a state of mind that every person hates putting themselves in. Couple this together with the fact that the buyer doesn't even know whether they won the auction, until X hours/days later. And during this period of time, they are under a state of uncertainty, which is another mental state that people generally hate. I think that for very expensive, non-time-critical and hobbyist items, an auction may work great. People may actually enjoy pouring effort into it because it is their hobby. But for any item that people just want to buy-and-move-on, auctions are a horrible mechanism. Perhaps one day when AI assistants make all our purchasing decisions for us, auctions will become the norm, but certainly not today.

rjmunro 7y ago
That sounds like why eBay added the "buy it now" feature.
octorian 7y ago
> When eBay first started, I loved the idea of auctions as a way to set market prices. From an economic and game-theory perspective, it is so optimal! > Clearly as later examples like Amazon have shown, auctions don't make sense for most product categories. I believe this is mainly due to psychological reasons. I've always loved eBay as a way to introduce sanity into the prices of old/used items. Especially computer equipment, where "regular vendors" would rather let it sit on the shelf marked at 10x what its worth than actually price it to a level someone would be willing to pay. Of course for new items, it never made any sense. The eBay prices were sometimes even higher than regular vendors, hoping to catch people in the place they happened to be looking.
- TheKarateKid 7y ago
  > The eBay prices were sometimes even higher than regular vendors, hoping to catch people in the place they happened to be looking. Before sales tax was mandated on eBay, it may have made sense to pay a little more than retail but save the amount in tax.
Mathnerd314 7y ago
eBay shows the top bid, which apparently is enough to induce a significantly different "sniping" strategy as optimal: http://users.ox.ac.uk/~inet0118/pdf/itterative.pdf http://users.ox.ac.uk/~inet0118/pdf/itterative.pdf eBay's done some things with "bidding agents" to attempt to ameliorate this but I don't think it worked since eBay is now 80% fixed price: https://tamebay.com/2017/02/are-ebay-auctions-a-thing-of-the-past.html https://tamebay.com/2017/02/are-ebay-auctions-a-thing-of-the... Amazon has seller-side auctions with its third party system. Presumably this results in a little bit of competition to lower prices, but there aren't really enough third party sellers to make it happen. Treasury bills are probably the largest auction held regularly and they seem to work well. But consumers all place non-competitive bids while the competitive bidding is left to expert financial firms. If I had to guess I'd say the real issue is people don't understand economics and would rather buy something at whatever price than spend the effort to identify a good price. Certainly my roommates at college never bothered picking out what was on sale, or even looked at the flyer. And I think the rest of the populace pays more attention to the size of the coupon than the price of the item.
cestith 7y ago
Increasing bid auctions, reverse auctions, and Vickrey auctions all have their pros and cons. Estate auctions and multi-seller auctions at auction warehouses give liquidity to the assets that would take a lot of time and energy to list and sell individually. Contrary to the scenes of Christie's and Sotheby's in TV and film, many auctions don't come extensively catalogued. It's often just "Here's another batch of knickknacks. Bidding starts at $3" or "Here's four more boxes of books, mostly nonfiction. Will anyone bid $5?"
catherd 7y ago
On top of decision fatigue and needing to know the market, losing auctions gets expensive fast if you value your time.
- specialist 7y ago
  aka transaction costs Book I read about market design estimated that only 30% of commerce was done in an open market. Relationships, fulfillment, quality, service, returns, etc are all factors too. All those non-price intangibles that the Freedom Markets™ zealots ignore.
  - AmericanChopper 7y ago
    How are markets that aren’t open not free?
  - JanisL 7y ago
    This book sounds interesting, what is the name of this book?
  - aeorgnoieang 7y ago
    All the "Freedom Markets zealots" I follow are cognizant of everything you mentioned.
- ISL 7y ago
  Hence the emergence of the middleman.
SamBam 7y ago
> You should put in a bid where you're exactly neutral between buying-vs-not-buying. Otherwise, you're leaving money on the table. This is asking people to make purchasing decisions whose outcomes will leave them explicitly not happy - a state of mind that every person hates putting themselves in. It seems that this is a problem the Vickrey auction solves. By charging the price offered by the 11th highest bidder, they are ensuring that everyone pays less than or equal to their bid, and most likely less than. This works out perfectly if everyone actually bids their neutral point: the winners are all either neutral or happy (most likely happy), the 11th is neutral, and the losers are all neutral or happy (most likely happy). In practice, people bid at a price that they'd be happy to get it, so actually the 11th will feel slightly miffed that they weren't able to purchase at that price. And of course all the losers will be annoyed that it cost so much. But the former problem can't really be helped, and the latter is baked into basic supply-demand.
- izietto 7y ago
  > so actually the 11th will feel slightly miffed that they weren't able to purchase at that price. Why not including the 11th in the winners? That would solve the "unhappiness" of the 11th bidder; am I missing something?
  - benchaney 7y ago
    It reintroduces the incentive to cheat in some situations. It also completely falls apart when there can only be one winner, which is a significant portion of the time.
  - SamBam 7y ago
    There are only ten widgets for sale. So it's not really "why not include the 11th in the winner," it's "why charge the 11th bid and not the 10th?" I think the reason is that everyone feels like they have a good chance of it going for less than they bid (and so they feel happy), but it probably also incentives higher bids.
pkamb 7y ago
I just do not trust that my item will gain enough traffic during the 7 day auction for there to be any competitive bidding. If there's not competitive bidding, it will sell for around the low initial bid. Much better to stage a "Reverse Auction" via Buy It Now + Easy Pricing. People can discover the item over weeks/months, and Watch it. When the price drops every week, they get an email. When it's low enough, they can buy immediately with no bidding or waiting.
- secabeen 7y ago
  The key to that is to list the item at $1 with no reserve. That will generate enough interest from bottom-feeders that it will usually do okay. I like your Reverse Auction if it's not something you want to sell quickly, but if you want to get the $$$ faster, the $1 auction does usually generate sufficient interest.
  - mongol 7y ago
    This is the way I ended up selling my IBM Model M keyboard on the swedish auction site Tradera for 1 SEK (about 10 cents). Not successful in my case.
daveheq 7y ago
It's not about complexity, it's about convenience. The simplest bid on eBay is... the highest price you'll pay for it. However, most people didn't think of it that way or want to do that (believe me I worked there for years), and they didn't like the chance to lose it anyway after waiting (snipers and bid shilling got ridiculous). Fixed price is easier and you get it quicker. It may be less complex but if the price looks reasonable it's definitely more convenient.
- TheKarateKid 7y ago
  > snipers and bid shilling got ridiculous Since you've worked there, I've always wondered: What did eBay think of this? Did they not care because it indirectly benefitted them? I feel like they could've done much more to prevent snipers and automated programs from putting in a last second bid.
Bluecobra 7y ago
To expand on this, Amazon’s Subscribe and Save is decision-fatigue on steroids. Maybe one day (with A.I.) Amazon can figure out how to order everything I need, when I need it. It’s already really handy for Tide to come once a month for a good price without thinking.
cortesoft 7y ago
The biggest reason why I use amazon over eBay is because I buy things I actually need, and I like knowing when I click the button I will have it tomorrow vs maybe not getting it ever.
nine_k 7y ago
It's not only the price, it's the time and certainty, resources often more scarce than money. A fixed price item is yours once you have paid for it. The amount you have paid is also known and fixed. In an auction, there can be no certainty for days. An auction may make sense (to me) for very expensive items, where a 10% difference can affect my ability to pay, but I am not in a hurry. Then the uncertainty can be worth it. Something like a car maybe. For daily items, it absolutely does not apply. Paying 50¢ less for a tube of toothpaste? Nice, but doesn't beat not having toothpaste in the morning because I lost my bid and the next auction ends in 2 days.

by whack 7y ago

rjmunro 7y ago

That sounds like why eBay added the "buy it now" feature.

octorian 7y ago

> When eBay first started, I loved the idea of auctions as a way to set market prices. From an economic and game-theory perspective, it is so optimal! > Clearly as later examples like Amazon have shown, auctions don't make sense for most product categories. I believe this is mainly due to psychological reasons. I've always loved eBay as a way to introduce sanity into the prices of old/used items. Especially computer equipment, where "regular vendors" would rather let it sit on the shelf marked at 10x what its worth than actually price it to a level someone would be willing to pay. Of course for new items, it never made any sense. The eBay prices were sometimes even higher than regular vendors, hoping to catch people in the place they happened to be looking.

TheKarateKid 7y ago
> The eBay prices were sometimes even higher than regular vendors, hoping to catch people in the place they happened to be looking. Before sales tax was mandated on eBay, it may have made sense to pay a little more than retail but save the amount in tax.

Mathnerd314 7y ago

eBay shows the top bid, which apparently is enough to induce a significantly different "sniping" strategy as optimal: http://users.ox.ac.uk/~inet0118/pdf/itterative.pdf http://users.ox.ac.uk/~inet0118/pdf/itterative.pdf eBay's done some things with "bidding agents" to attempt to ameliorate this but I don't think it worked since eBay is now 80% fixed price: https://tamebay.com/2017/02/are-ebay-auctions-a-thing-of-the-past.html https://tamebay.com/2017/02/are-ebay-auctions-a-thing-of-the... Amazon has seller-side auctions with its third party system. Presumably this results in a little bit of competition to lower prices, but there aren't really enough third party sellers to make it happen. Treasury bills are probably the largest auction held regularly and they seem to work well. But consumers all place non-competitive bids while the competitive bidding is left to expert financial firms. If I had to guess I'd say the real issue is people don't understand economics and would rather buy something at whatever price than spend the effort to identify a good price. Certainly my roommates at college never bothered picking out what was on sale, or even looked at the flyer. And I think the rest of the populace pays more attention to the size of the coupon than the price of the item.

cestith 7y ago

Increasing bid auctions, reverse auctions, and Vickrey auctions all have their pros and cons. Estate auctions and multi-seller auctions at auction warehouses give liquidity to the assets that would take a lot of time and energy to list and sell individually. Contrary to the scenes of Christie's and Sotheby's in TV and film, many auctions don't come extensively catalogued. It's often just "Here's another batch of knickknacks. Bidding starts at $3" or "Here's four more boxes of books, mostly nonfiction. Will anyone bid $5?"

catherd 7y ago

On top of decision fatigue and needing to know the market, losing auctions gets expensive fast if you value your time.

specialist 7y ago
aka transaction costs Book I read about market design estimated that only 30% of commerce was done in an open market. Relationships, fulfillment, quality, service, returns, etc are all factors too. All those non-price intangibles that the Freedom Markets™ zealots ignore.
- AmericanChopper 7y ago
  How are markets that aren’t open not free?
- JanisL 7y ago
  This book sounds interesting, what is the name of this book?
- aeorgnoieang 7y ago
  All the "Freedom Markets zealots" I follow are cognizant of everything you mentioned.
ISL 7y ago
Hence the emergence of the middleman.

SamBam 7y ago

> You should put in a bid where you're exactly neutral between buying-vs-not-buying. Otherwise, you're leaving money on the table. This is asking people to make purchasing decisions whose outcomes will leave them explicitly not happy - a state of mind that every person hates putting themselves in. It seems that this is a problem the Vickrey auction solves. By charging the price offered by the 11th highest bidder, they are ensuring that everyone pays less than or equal to their bid, and most likely less than. This works out perfectly if everyone actually bids their neutral point: the winners are all either neutral or happy (most likely happy), the 11th is neutral, and the losers are all neutral or happy (most likely happy). In practice, people bid at a price that they'd be happy to get it, so actually the 11th will feel slightly miffed that they weren't able to purchase at that price. And of course all the losers will be annoyed that it cost so much. But the former problem can't really be helped, and the latter is baked into basic supply-demand.

izietto 7y ago
> so actually the 11th will feel slightly miffed that they weren't able to purchase at that price. Why not including the 11th in the winners? That would solve the "unhappiness" of the 11th bidder; am I missing something?
- benchaney 7y ago
  It reintroduces the incentive to cheat in some situations. It also completely falls apart when there can only be one winner, which is a significant portion of the time.
- SamBam 7y ago
  There are only ten widgets for sale. So it's not really "why not include the 11th in the winner," it's "why charge the 11th bid and not the 10th?" I think the reason is that everyone feels like they have a good chance of it going for less than they bid (and so they feel happy), but it probably also incentives higher bids.

pkamb 7y ago

I just do not trust that my item will gain enough traffic during the 7 day auction for there to be any competitive bidding. If there's not competitive bidding, it will sell for around the low initial bid. Much better to stage a "Reverse Auction" via Buy It Now + Easy Pricing. People can discover the item over weeks/months, and Watch it. When the price drops every week, they get an email. When it's low enough, they can buy immediately with no bidding or waiting.

secabeen 7y ago
The key to that is to list the item at $1 with no reserve. That will generate enough interest from bottom-feeders that it will usually do okay. I like your Reverse Auction if it's not something you want to sell quickly, but if you want to get the $$$ faster, the $1 auction does usually generate sufficient interest.
- mongol 7y ago
  This is the way I ended up selling my IBM Model M keyboard on the swedish auction site Tradera for 1 SEK (about 10 cents). Not successful in my case.

daveheq 7y ago

It's not about complexity, it's about convenience. The simplest bid on eBay is... the highest price you'll pay for it. However, most people didn't think of it that way or want to do that (believe me I worked there for years), and they didn't like the chance to lose it anyway after waiting (snipers and bid shilling got ridiculous). Fixed price is easier and you get it quicker. It may be less complex but if the price looks reasonable it's definitely more convenient.

TheKarateKid 7y ago
> snipers and bid shilling got ridiculous Since you've worked there, I've always wondered: What did eBay think of this? Did they not care because it indirectly benefitted them? I feel like they could've done much more to prevent snipers and automated programs from putting in a last second bid.

Bluecobra 7y ago

To expand on this, Amazon’s Subscribe and Save is decision-fatigue on steroids. Maybe one day (with A.I.) Amazon can figure out how to order everything I need, when I need it. It’s already really handy for Tide to come once a month for a good price without thinking.

cortesoft 7y ago

The biggest reason why I use amazon over eBay is because I buy things I actually need, and I like knowing when I click the button I will have it tomorrow vs maybe not getting it ever.

nine_k 7y ago

It's not only the price, it's the time and certainty, resources often more scarce than money. A fixed price item is yours once you have paid for it. The amount you have paid is also known and fixed. In an auction, there can be no certainty for days. An auction may make sense (to me) for very expensive items, where a 10% difference can affect my ability to pay, but I am not in a hurry. Then the uncertainty can be worth it. Something like a car maybe. For daily items, it absolutely does not apply. Paying 50¢ less for a tube of toothpaste? Nice, but doesn't beat not having toothpaste in the morning because I lost my bid and the next auction ends in 2 days.