eBay auction bidding

eBay bidding

The protocol and philosophy for bidding in eBay auctions is very similar to bidding in live auctions, with two major differences:

• how commissions are paid
• how sales end

Commissions. Professional auction houses collect commissions from both buyers and sellers; eBay collects commissions from sellers only. 

How sales end. Bidding sessions in live auctions end when no one is willing to outbid the previous bidder. EBay sales end at a specific moment in time.

This difference seems trivial, but masks a deceptive complexity that creates a deep and pervasive misunderstanding of the whole eBay bidding process.

eBay's "automatic bidding" system

Conversations with correspondents and friends strongly suggest that average buyers only partially understand the automatic bidding system. While eBay explains the process online, it seems few people actually read the material and fewer still understand the ramifications. If there were one thing I could ask eBay to improve, it is their communication about how their bidding system works.

The eBay system is as close an analog to the live auction process as can be managed with programming. The eBay system embraces these major assumptions:

• high bid wins
• bidding advances by specific bid increments
• higher bid amounts have larger bid increments
• bidding stops at a specific instant in time
• bidders know exactly how much they are willing to pay.

That seems pretty clear, doesn't it?

EBay goes on to explain, "We'll place bids on your behalf using the automatic bid increment amount, which is based on the current high bid."

Conversations with all sorts of collectors and dealers, even very experienced ones, tell me that a huge percentage of bidders do not BELIEVE this simple concept. Everyone who is truly interested in understanding the eBay proxy bidding system should visit eBay Help pages. Simply look under "Bidding and Buying."

EBay has tried forever to explain its bidding process, I have certainly wasted countless hours talking and writing about it. I have found the best way to illustrate the concepts is to go through a typical sale step by step.

Example of eBay's automatic bidding system
— when bidders do not understand eBay's automatic bidding system

The situation:

• The Seller wants to sell a certificate. He does not know that the certificate has sold elsewhere for $100 to $150. He starts his auction at 99 cents. His auction will be a typical 7-day auction.
• Bidder 1 has bought quite a few certificates on eBay. He suspects that the certificate should be worth at least $75 in today's market, but has a vacation planned and won't be able to bid again before the sale ends.
• Bidder 2 has also bought numerous certificates on eBay, but guesses the certificate is probably "worth" at least $40.
• Bidder 3 does not have a good idea of value, but knows he has never seen the certificate before.

				Visible ebay display
Comment	Bid	Automatic bid	Hidden high bid	Current winning bid	Next acceptable bid	Who's winning?
Sale starts.					$0.99
Bidder 1 finds the certificate online. There are no bids, so he puts in a $6 bid. He'd like to have the certificate for his collection but is leaving town. "Maybe I'll get lucky."	$6.00		$6
eBay computers place Bidder 1's bid. That bid is first, so eBay displays the lowest acceptable bid. The next acceptable bid is one bid increment ($0.05) higher.		$0.99 - $0.05	$6	$0.99	$1.04	Bidder 1
Bidder 2 spots the certificate. The eBay screen says that he must bid at least $1.04, which he promptly does.	$1.04		$6			Bidder 1
eBay computers place Bidder 2's bid. Bidder 1's $6.00 standing bid is higher than $1.04. eBay automatically increases Bidder 1's bid by "one bid interval" ($0.25) above the next lower bid.		$1.04 + $0.25	$6			Bidder 1
Bidder 2 refreshes his screen and finds he has been outbid. He wonders, "I don't get it. How did that happen?"			$6	$1.29	$1.54	Bidder 1
Bidder 2 places a $4.50 bid just to test whether someone else is out there.	$4.50		$6			Bidder 1
eBay computers place Bidder 2's bid. Bidder 1's standing $6.00 bid is still the high bid. In order to keep Bidder 1 winning, eBay automatically increases his bid by eBay automatically adds "one bid interval" (25 cents) above the next lower bid.		$4.50 + $0.25	$6			Bidder 1
Bidder 2 immediately refreshes his screen and discovers he has been outbid again.			$6	$4.75	$5.00	Bidder 1
Bidder 2 gets mad and puts in a $15 bid. "That will show him!"	$15.00		$15			Bidder 2
eBay computers place Bidder 2's bid. The next lower standing bid was $6, so Bidder 2 now has the standing bid of $15.00. eBay automatically adds one bid interval (now $0.50) to the next lower bid and Bidder 2's bid becomes $6.50		$6.00 + $0.50	$15			Bidder 2
Bidder 2 refreshes his screen again and sees he is now the high bidder. "Yay!"			$15	$6.50	$7.00	Bidder 2
Bidder 3 finds the certificate on eBay and sees it is one he does not have. The eBay screen tells him that he must place a bid of at least $7. He figures he will play it safe and doubles the bid to $14. "Maybe I can 'steal' this certificate."	$14.00		$15			Bidder 2
eBay computers automatically places Bidder 3's bid. Bidder 2's standing bid is still the highest bid and automatically advances bidder 2's bid by one bid interval higher than the next lower bid. Bidder 3 refreshes his screen and sees he has been overbid. "Let's wait until the sale is almost over and I'll bid $1 more. I bet I can 'snipe' this certificate!"		$14.00 + $0.50	$15			Bidder 2
Bidder 2 notices he is still the high bidder, but only 50 cents less than his maximum bid. He is now worried he might lose the auction. "I'll wait until near the end of the sale and maybe bid as much as $40. I'm NOT going to let this get away from me."			$15	$14.50	$15.00	Bidder 2
Bidder 3 returns, and sees he was outbid by $0.50 He raises his bid $1.50 and then a $1, Bidder 2 responds by raising $10. They go back and forth, alternately raising the other by $1 and $10 each time. By accident, Bidder 2 had bid more than he wanted, but finally was ahead when the sale deadline ended bidding. (In the closing moments of the sale, Bidder 3 had placed a $38, followed by $48 by Bidder 2. Microseconds later, ebay added one bid increment to Bidder 3's $38 bid. Consequently, Bidder 2 won the sale at $39.00.)	$16, $26, $27, $37, $38, $48	$1 over next lower bid	$16, $26, $27, $37, $38, $48	$38.00	$39.00	Bidder 2, Bidder 3
Sale closes. Bidder 2 is the winner at one bid increment above the next lower bid.				$39.00	Sold	Bidder 2

Unraveling the bid. How did everyone fare in this situation?

• eBay is happy with its fees (commission.)
• The seller is happy because he received $39 (minus fees) and was expecting much less.
• Bidder 1 comes back to see that he has missed out on a good deal and is disappointed.
• Bidder 3 is a little upset by how everything turned out. It looks like he lost by $1, when in fact, he lost by $10 to Bidder 2's high actual bid of $48. On the other hand, bidding was so quick in the final seconds that he wonders what Bidder 2's real maximum price might have been. Maybe he dodged a bullet!
• Bidder 2 is theoretically happy. He won the certificate for less than $40, but only by "the hair on his chinny chin chin.", He had actually bid $8 more than he wanted. "Did I get a good deal or not?"

So where's the problem? Had Bidder 1 had known the rules of automatic bidding, he could have won the certificate and still gone on vacation.

Don't understand the odd jumps in price? This reflects eBay's bidding increments.

Example of eBay's automatic bidding system
— when at least one bidder understands eBay's bidding system

In this example, Bidder 1 fully understand eBay's bidding system. The behavior of the other bidders is the same as before.

				Visible ebay display
Comment	Bid	Automatic bid	Hidden high bid	Current winning bid	Next acceptable bid	Who's winning?
Sale starts.					$0.99
Bidder 1 finds the certificate online. He is going on vacation and puts in a $75 bid. "I think this certificate is worth $100 or more. My top-dollar bid is $75, just in case there are undisclosed problems. "Maybe I'll get lucky."	$75.00		$75
eBay computers place Bidder 1's bid. That bid is first, so eBay displays the lowest acceptable bid which is one bid interval above the start price.		$0.99 + $0.05	$75	$0.99	$1.04	Bidder 1
Bidder 2 spots the certificate. The eBay screen says that he must bid at least $1.04, which he promptly does.	$1.04		$75			Bidder 1
eBay computers place Bidder 2's bid. Bidder 1's $6.00 standing bid is higher than $1.04. eBay raises Bidder 1's bid "one bid interval" ($0.25) above the next lower bid.)		$1.04 + $0.25	$75			Bidder 1
Bidder 2 refreshes his screen and finds he has been outbid. He wonders, "How did that happen?"			$75	$1.29	$1.54	Bidder 1
Bidder 2 places a $4.50 bid just to test whether someone else is out there.	$4.50		$75			Bidder 1
eBay computers place Bidder 2's bid. Bidder 1's standing $75.00 bid is still the high bid. eBay adds "one bid interval" (25 cents) to the next lower bid.		$4.50 + $0.25	$75	4.75	$5.00	Bidder 1
Bidder 2 refreshes his screen and discovers he has been outbid again.			$75	$4.75	$5.00	Bidder 1
Bidder 2 gets mad and puts in a $15 bid. "That will show him!"	$15.00		$75			Bidder 1
eBay computers place Bidder 2's bid. Again, Bidder 2 is outbid by a hidden $75 standing bid. eBay again automatically adds one bid interval (now $0.50) to the next lower bid.		$15.00 + $0.50	$75	$15.50	$16.00	Bidder 1
Bidder 2 sees he is still not the high bidder. "I think I'll wait until the sale almost closes. and bid my top dollar."			$75	$15.50	$16.00	Bidder 1
Bidder 3 finds the certificate on eBay and sees it is one he does not have. The eBay screen tells him that he must place a bid of at least $16. It's already pricier than he wants to pay but he wants the certificate. "I'll double my bid to $32 and that's it. If I don't have the top bid at $32, I'm done!"	$32.00		$75			Bidder 1
eBay computers automatically places Bidder 3's bid. Bidder 1's standing bid is still the highest bid and the automatic bid advances one interval higher than the next lower bid (at $32.)		$32.00 + $1.00	$75	$33.00	$34.00	Bidder 1
Bidder 3 throws in the towel. Bidder 2 notices he is still not the high bidder, It's close to auction close, so he places his current high-bid of $40. "If I am outbid again, I'm done!"	$40		$75			Bidder 2
eBay automatically advances Bidder 1's next lower bid by one interval and Bidder 2 notices is still not the high bidder. "I'm going to bid $10 and THAT is my final offer. But I'm going to wait until a few seconds before close so no one will have a chance to bid higher. I've gotta win!"		$40.00 + $1.00	$75	$41.00	$42.00	Bidder 2
Bidder 2 raises his "best and final" bid to $50 and was immediately overbid yet again as the sale closes.	$50.00		$75	$50.00	$51.00	Bidder 1
Sale closes. Bidder 1 is the winner at one bid increment above the next lowest bid.			$75	$51.00	Sold	Bidder 1

Unraveling the second auction. What happened?

• EBay's position was the same and received the same amount of fees.
• The seller is happy because he received $51 (minus fees) and was expecting much less.
• Bidder 2 got out of sale after bidding more than his original "top bid." While he did not win, he also realized that he bid $10 (or 25%) more than he had wanted. The truth was, he had no idea where either he or the sale was going to end up.
• Similarly, Bidder 3 had no idea where the sale was going, and consequently was simply bidding "blind."
• Bidder 1 is satisfied. He enjoyed his vacation and won the certificate. He left nothing "on the table" because he paid only $1 more than his next closest competitor. He also knew that he had bid in such a way as to acquire a hard-to-find certificate with "some cushion" just in case the certificate had unreported problems. 

EBay says, quite plainly, "We'll bid only as much as necessary to make sure that you remain the high bidder".

Got that? High bidders win! In this respect, eBay's policy is in line with ordinary live auctions. The rules are really simple:

To win in a live auction: Bid more than anyone else...before the auctioneer hammers the sale closed.
To win in an eBay auction: bid more than anyone else...before the end of the sale.

By understanding eBay's automatic bidding system, Bidder 1 understood that he would never overpay and would never lose unless someone bid more. It doesn't matter whether a higher bidder might have been willing to spend $1.076, $176, or $76, they would have won and Bidder 1 would have lost. If Bidder 1 had been uncomfortable losing to a $76 bid, then he should have bid more. Simple as that.  If collectors genuinely want certificates, and bid less than their maximum, they will lose to a higher bidder, no matter whether they are bidding in eBay auctions, mailbid auctions, or live auctions.

The #1 rule for bidding in auctions

I contend that bidders MUST always establish their absolute maximum price they are willing to pay before they ever place a bid. They do not need to open with that bid, but they better know precisely what their maximum is. I explain this rationale more fully in my discussion of auction bidding. Never, never, never bid more than your maximum estimated price. NEVER!

The long and the short of it. IF bidders establish their EXACT maximum bid prices, and bid those amounts, then they should never walk away from any sale disappointed.

Conversely, If they are ever disappointed with the outcome of a sale, either by winning or losing, then they simply did not establish their maximum bids in advance. They need to re-examine their practices before the next auction.

The wonderful benefit of this approach is that you will never need to deal with last minute eBay bids again. Once you place your best bid, you never need to make another bid. Ever. It does not matter whether you place your bid seven seconds before the end of a sale – or seven days before. If you are willing to pay your highest price, then it is simply not possible to lose to last minute bidders ("snipers") unless they bid more.

Sniping

Please understand that snipers can never win a single sale unless they are willing to pay more than the second highest bidder. It is exactly as simple as that!

I cannot tell you how many times I have had snipers argue that they win items by being the last bidder. With apologies to their beliefs, they are simply deluding themselves. The only reason snipers ever win auctions is by being the highest bidder at closing time. Snipers DO win sales, but not by being better bidders or being the last bidders. Snipers win by taking advantage of people who don't fully understand eBay's auction system.

Read eBay Help screens fully. You will never see a reference to being the last bidder. Under "How to Bid", eBay clearly says, "Enter your maximum bid." eBay does not explain its rationale very well, but it is not kidding.

One final word. Remember that a snipe-hunt is simply another word for a wild-goose chase.

What about "shill" bidding

A "shill" bidder is someone who bids in order to artificially increase prices. Conceivably, shills can be family members, roommates, or employees.

I don't think it is possible to truly prevent shill bidding. But, please understand that not all activity that looks like shill bidding really is.

EBay, eBid, and other online auction businesses have strict rules against shill bidding and will supposedly investigate any activity that seems suspicious. Penalties can range from mild warnings to law enforcement remedies. Shill bidding is nothing to mess with. In live auction situations, auctioneers face fines and jail time for allowing or condoning shill bidding.

EBay thoroughly explains the rules against shill bidding and has a multi-page tutorial on the subject. Publicly, eBay seldom says anything about the degree to which shill bidding might exist. It is reported, however, that eBay has bid pattern tracking software that analyzes sales, bids, feedback, photo hosting, timing, and IP addresses.

If shill bidding exists, I personally don't think it is severe. Maybe I'm a Pollyanna, but so far, I have only encountered a couple eBay cases that "smelled a bit suspicious." 

Silliness. I once read a serious commentary on the web that suggested that readers might avoid shill bidding on eBay by placing bids only in the last minutes of auctions (sniping.) If that is how someone wants to go through life, fine. But remember, snipers can win auctions only by being high bidders. They cannot win by being last bidders. Besides, being the last bidder does not in any way insure against shill bidding that may already have taken place. If shill bidding took place on any day prior to the end of a sale, then what exactly do snipers gain by bidding only in the last minutes of an auction?

Bluntly, "Screwed is screwed."

Sending information from eBay and other online sources

Hundreds of collectors from all around the world contribute information to this large and long-running project. I am incredibly honored!

The best information comes from personal collections. Most correspondents send scanned images of certificates from their collections. Once they exhaust that kind of information, some try to continue contributing by searching the web for new material. With its ever-changing selection, eBay is an excellent place to find images and serial numbers.

H-O-W-E-V-E-R, I have a dramatic lack of time. The wealth of material available on eBay conflicts with my lack of time. On average, I spend about 10 TO 15 hours per week recording information from contributors, formal auctions, and eBay. I cannot possibly spend one more minute than I already do.

Hence my policy since June, 2006: I WILL NOT follow links to any eBay or online sales. Many collectors feel they are doing me favors by sending links to eBay and other online sites and I appreciate their intentions. However, I simply cannot use that kind of help anymore. I tried for several years, but discovered the time spent following eBay and online sales links was unsustainable.

Please, do not send images from eBay sales unless you were the buyer. In that case, please scan the certificate at 300 dpi or send a good photo. Send in several pieces if certificates are too large for your scanner.

I rarely use photos on this web site unless they are evenly lit and minimally distorted. I do, however, record every other bit of information I can including dates, share values, serial numbers, imprinted revenues, celebrity autographs, and prices paid. I always try to respond within one day unless I am terribly busy or otherwise engaged.