Proxy bidding is an implementation of an

English English usually refers to: * English language * English people English may also refer to: Peoples, culture, and language * ''English'', an adjective for something of, from, or related to England ** English national ide ...

second-price auction A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest ...

used on

eBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became ...

, in which the winning bidder pays the price of the second-highest bid plus a defined increment. It differs from a

Vickrey auction A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest ...

in that bids are not sealed; the "current highest bid" (defined as second-highest bid plus bid increment) is always displayed.

Description and use

uses the term ''proxy bidding'' to refer to their implementation of an

, in which the winning bidder pays the price of the second-highest bid, in addition to a defined increment. Though similar to a

, the bids are not sealed. The "current highest bid" (defined as second-highest bid plus bid increment) is always displayed.

Comparison and analysis

In a standard

English auction An English auction is an open-outcry ascending dynamic auction. It proceeds as follows. * The auctioneer opens the auction by announcing a suggested opening bid, a starting price or reserve for the item on sale. * Then the auctioneer accepts incre ...

, the winner pays the amount of their bid—regardless of competitors' bids—and it is therefore desirable to place a bid that exceeds the current highest bid by the smallest possible increment. Conversely, under proxy bidding, the price paid is determined only by competitors' bids and not by the amount of the new bid; this eliminates the economically rational incentive to place a bid below the amount one is willing to pay or to place multiple increasing bids. An "economically rational" bidder will therefore bid the maximum amount they are willing to pay on their first bid, and never raise their bid. eBay's approach, however, reveals the bidder's limit to rival bidders early in the auction, which can sometimes artificially inflate the price of the item higher than its actual intrinsic value, and ultimately encourages the practice of

auction sniping Auction sniping (also called bid sniping) is the practice, in a timed online auction, of placing a bid likely to exceed the current highest bid (which may be hidden) as late as possible—usually seconds before the end of the auction—giving o ...

References

EBay Types of auction {{Gametheory-stub