Auctus Development, Inc.
Auction Strategy Consulting
Basic Bidding Strategy
Single Unit Auctions
Single Unit Auction: Only one item is being sold. If a case of coffee mugs is being auctioned, and bidders have to bid on the whole case, then this would be a single unit auction. If bidders can buy individual coffee mugs, then this is a Multiple Unit auction.
The bidder must first determine to what extent the actions of other bidders will affect the amount he/she is willing to bid. At one extreme, the other bidders' actions are irrelevant (private values). At the other extreme, the amount the bidder is willing to bid is entirely dependent on the other participants' actions (common values). Some examples:
Consider the case when a bidder is interested in purchasing a color inkjet printer. The computer store down the street has them on sale for $195, and an Internet site has the same printer up for auction with a special offer of free shipping. Our bidder would be willing to pay up to, say, $180 for purchasing the printer at auction. He/she does not care if there are no other bidders, if all the other bidders refuse to bid over $20, or if several bidders are all willing to bid over $250. Our bidder is only interested in whether he/she can purchase the printer for $180 or less and the other bidders' actions are irrelevant. This is an example of private values.
Now consider the case when a bidder is a trader in collectibles, perhaps Coca-Cola bottles. Our bidder has at least one of every kind of bottle already and is only continuing to purchase bottles in the hope of reselling them at a profit. In this case, our bidder is very interested in what the other bidders do in order to determine what the current perceived value is of a particular bottle. If there are many bids around $5 and the quantity of bids drops off gradually at about $11, then that information is useful in developing a feel for the market and what our bidder should do. Contrast this with the situation where there are many bids around $5 and two bidders are aggressively competing to raise the current winning bid to $25. Since our bidder is very interested in other bids, this is an example of common values.
In the private value case (the printer example), the English or Proxy English method is recommended for the bidder. When using the English method, our bidder should always bid a smidge more than the current high bid, up to his/her value ($180 in the example). When using the Proxy English, our bidder should enter his/her value ($180) and await the outcome.
In the common value case (the Coca-Cola bottles), the English is recommended. Specific bidding tactics are much more subjective here. While there is bidder depth, our bidder probably should continue to bid, up to the amount he/she can reasonably afford, risk or allocate to inventory.
In between these two extremes, the recommended method and bidding tactics vary.
If there are several auction sites offering the same item or if the same item is offered several times on a single site, our bidder must select which auctions in which to participate. In general, auctions with few bidders are better. However, if our bidder must choose between auctions using unrecommended methods with few bidders and auctions using recommended methods with many bidders, he/she should usually select the latter.
Our bidder may choose to participate in several auctions simultaneously for the same item. Great care must be taken to avoid winning more than one. In this situation, the Proxy English is not recommended--he/she should only use the English.
A bidder with private values does not care whether the auction has a reserve price or not. A bidder with common values should avoid auctions with posted reserve prices, but auctions with no reserve price or with a secret reserve price are recommended.
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