Avoiding The Bidding Bubble…

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EBAY is a strange marketplace…

I have been part of the EBAY community for many years, both as a buyer and a seller. Over that time, I have had the opportunity to observe people’s bidding patterns, and have come to a pretty interesting conclusion.

Too many people on EBAY have no rational basis for the way they bid…

For those readers that don’t know how bidding works on EBAY, it’s actually pretty simple. You can enter the maximum amount you are willing to bid on an item, and EBAY will automatically raise your bid in fixed increments as other people bid against you. This is different from bidding in a live auction, where the amount you signal is actually placed as a bid. On EBAY, no matter what the maximum value was that you entered for your bid, you’ll only end up bidding the minimum you need to win an auction.

What I have found, however, is that when people are outbid, they will often come right back and adjust their “maximum” bid amount upward. I doesn’t matter that they might have had days to decide what their maximum bid should be. They suddenly want to bid higher when they see they are losing.

And within seconds they freely abandon reason…

Based on the general pattern of bidding behavior I have observed on EBAY, I would posit that there is only one truly rational bidding strategy that can be employed there.

Sniping…

“Sniping” is a typically pejorative term applied to the practice of placing bids on an auction item at the last possible moment before it ends. On an emotional level, other bidders tend to consider snipers something of a cross between a jerk and a thief. They become angry and indignant when a sniper sweeps in in the final seconds and “robs them of their victory”.

But emotions aside, the fallacy of bidding early is clear…

There is no first mover advantage in placing a bid. While it may appeal to a primal urge we have to “mark our territory”, early bidding does not offer any knowledge or control that can help the bidder create a more beneficial outcome for themselves.

In fact, the opposite tends to be true…

I see two key negative consequences from early bidding:

First, any bids placed before the final moments of an auction can stimulate an emotional competitive response in the market and drive the winning bid higher. In that case, these early bidders simply end up bidding against themselves. Second, auctions with existing bids tend to attract more interest than those without bids. And that increased interest will only work to the seller’s advantage – not to the buyers.

Bidding isn’t a personal competition. It’s a marketplace mechanism for determining the spot value of goods. Unfortunately, the social context of the bidding process can create “Bidding Bubbles” – emotional pockets that drive valuations above the rational worth of the items in question.

It happens with stock markets. It happens with housing markets.

And it happens on EBAY…

The process of bidding exploits our competitive nature to drive us to act against our broader self interest. It injects emotion into a situation best served by dispassion – turning interest into desire, and desire into desperation.

And it leads us to make irrational decisions…

Successful bidding on EBAY requires patience and discipline. You need to determine in advance the maximum amount you are willing to bid for an item. You need to wait to the very last moment, and place that maximum bid at a point in the auction when no one can react to it.

And you need to be willing to walk away without “winning”…

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