Last Minute Bidding and the Rules for Ending Second Price Auctions: Theory and Evidence from a Natural Experiment on the Internet

Monday, December 4, 2000 - 3:00pm - 4:00pm
Keller 3-180
Alvin Roth (Harvard University)
An important issue in auction design concerns the rules governing the end of the auction. The internet auctions conducted by eBay and Amazon present a natural experiment because they use different rules for ending an auction. Auctions on eBay have a fixed end time, while auctions on Amazon, which operate under otherwise similar rules, do not have a fixed end time, but continue if necessary past the scheduled end time until ten minutes have passed without a bid. The strategic differences in the auction rules are reflected in the auction data by significantly more late bidding on eBay than on Amazon. Furthermore, more experienced bidders on eBay submit late bids more often than do less experienced bidders, while the effect of experience on Amazon goes in the opposite direction. On eBay, there is also more late bidding for antiques than for computers. We also find scale independence in the distribution over time of bidders' last bids, of a form strikingly similar to the 'deadline effect' noted in bargaining: last bids are distributed according to a power law. Both the theory and the data suggest that multiple causes contribute to late bidding, with strategic issues related to the rules about ending the auction playing an important role.