Auction sniping
Encyclopedia
Auction sniping is the process, in a timed online auction
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...

 (such as on eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...

), of placing a winning bid
BID
Bid may refer to:*Bidding, making a price offer in an auction, stock exchange, or card games*Bid , a British home shopping channel...

 at the last possible moment (often seconds before the end of the auction), giving the other bidders no time to outbid the sniper. This can be done manually, or by software. The software can be designed for the purpose running on a bidder's computer, or for an online Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...

 sniping service, where the software agent
Software agent
In computer science, a software agent is a piece of software that acts for a user or other program in a relationship of agency, which derives from the Latin agere : an agreement to act on one's behalf...

 is run from a website
Website
A website, also written as Web site, web site, or simply site, is a collection of related web pages containing images, videos or other digital assets. A website is hosted on at least one web server, accessible via a network such as the Internet or a private local area network through an Internet...

. Use of a service is stated to decrease the failure rate of the snipe, because the website is expected to have more reliable servers and Internet connection with lower and less variable delay in sending data (latency) enabling the bid to be placed closer to the deadline, even arriving within the last second.

A bid sniper is a person who, or software agent
Software agent
In computer science, a software agent is a piece of software that acts for a user or other program in a relationship of agency, which derives from the Latin agere : an agreement to act on one's behalf...

 which performs auction sniping.

Legality and acceptance by auction sites

While auction sniping is frowned upon by some people, it may not break any of the rules established by the auction site. For example it is permitted by eBay. eBay Germany banned automated sniping services in 2002, but the ban was declared illegal by Berlin
Berlin
Berlin is the capital city of Germany and is one of the 16 states of Germany. With a population of 3.45 million people, Berlin is Germany's largest city. It is the second most populous city proper and the seventh most populous urban area in the European Union...

's County Court, and revoked.

A few other auction sites (such as iGavel, the New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...

 auction site TradeMe
TradeMe
Trade Me is the largest Internet-auction website operating in New Zealand. Managed by Trade Me Ltd the site was founded in 1999 by New Zealand entrepreneurSam Morgan who sold it to Fairfax in 2006 for NZ$700 million...

, and the real estate auction site Bid on the City
Bid on the City
Bid on the City , launched in New York City in April 2009, is the first live online real estate auction site to use real time video and audio streaming. BidOnTheCity.com was co-founded by Albert Feinstein and Vlad Sapozhnikov with more than $3,000,000 of initial investment...

) automatically extend the bid deadline by a few minutes if a bid is placed in the last moments of the auction, to give other buyers time to react. There are few possible ways of sniping prevention: one is to extend the time as described above, and another is to end the auction at a random time (e.g., at any instant within a one-hour interval).

Strategic Reasons for Sniping

Experienced bidders of online auctions with fixed ending times often prefer entering bids late in the auction to avoid bidding wars (multiple rounds of bidders each increasing their maximum bid to temporarily regain "current highest bid" status) or bid chasing (where the presence of an existing bid encourages others to bid on the same item).

Economic analysis of sniping
(Roth and Ockenfels, 2000)
suggests that sniping is a rational gain-maximizing (i.e., price-minimizing) strategy for bidders in auctions which fulfill two criteria: 1) the end time is rigidly fixed (such as those on eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...

), and 2) it is possible to gain additional information about the "true" value of the item by inspecting previous bids. For example, a novice antiques buyer may prefer to bid in auctions which already have bids placed by more experienced antiques buyers, on the grounds that the items which the experienced buyers are interested in are more likely to be valuable. In this case, more informed buyers may delay bidding until the last minutes of the auction to avoid creating competition for their bids, leading to a lower winning bid. Because of the practice of sniping, the highest bid 10 minutes before the end of a contested auction is often not at all representative of the eventual selling price.

Analysis of actual winning bids on eBay
(Yang and Kahng, 2006)
suggests that winning bidders are more likely to have placed a single bid late in the auction, rather than placing multiple incremental bids as the auction progresses.

Avoidance of Maximum Bid Fishing

Properly implemented, proxy bidding would be considered a type of closed auction system, where bidders cannot see the current highest bid until they've actually out-bid it, and where winners pay an incremental amount more than the second highest bid. Proxy bidding requires the wise bidder to know in advance the value of an item and their limit for bidding on it, and to have trust in their auctioneer not to disclose this limit, even accidentally. However, improper implementation of proxy bidding introduces a new danger, maximum bid fishing. For some implementations of the proxy system (such as the one used on eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...

), although the server does not disclose the current maximum bid, it will indicate when a previous maximum has been outbid. This allows bidders unsure of the value of an item to incrementally increase their bid until they narrowly exceed the previously hidden maximum, thus placing themselves in a winning position without placing a very high bid.

Shill Avoidance

This opens a loop-hole to fraudulent practice by a shill
Shill
A shill, plant or stooge is a person who helps a person or organization without disclosing that he or she has a close relationship with that person or organization...

 which allows an agent for the seller, which may be another account of the seller to raise the bid to the maximum. They then hope the original bidder will increase their maximum bid even by a small amount to win the auction. The danger to the seller in this case is that the original bidder may not choose to increase their bid, leaving the seller with a futile transaction (selling the item to themselves) which will still incur a fee from the auction service. However, it is possible for the seller to avoid this fee by submitting a mutually agreed cancellation from the buyer and seller application which will result in the waiving of the auction fee as well as a 'free relist' credit. The best way to avoid being duped by such a scheme is to snipe the item, denying the seller of any opportunity to push up the maximum bid.

Objections to bid sniping

Non-sniping bidders object to sniping, claiming that it is unfair to place bids at a point when it is impossible or unfeasible for other bidders to evaluate and possibly counter the bid, causing them to lose auctions even though they would have been willing to meet the winning bid amount. Bidders sometimes object to sniping when multiple, identical items are listed as separate lot, as they must wait until the last minute to find whether their maximum bid on one lot has been exceeded before being in a position to bid on another.

However, online auction sites such as eBay, unlike live auctions, usually have an automatic bidding system which allows a bidder to enter the maximum acceptable bid. This is a hidden or proxy bid
Proxy bid
Proxy bidding is an implementation of an English second-price auction used on eBay, in which the winning bidder pays the price of the second-highest bid plus a defined increment. It differs from a Vickrey auction in that bids are not sealed; the "current highest bid" is always displayed...

,known to the system, but not any other bidders; during the auction the actual bid is incremented only enough to beat the existing highest bid. For example, if an item's current maximum high bid is 57 and someone is prepared to pay 100 and bids accordingly, the actual bid will be presented as 58, with the hidden maximum of 100. Proxy bidding also discourages 'bidding wars', and can encourage 'opportunistic' bidding on low-priced items.

The failure of a maximum acceptable bid beaten by a sniper prepared to pay more is not due to the act of sniping, unless the original bidder would have bid higher when they saw the price rise. For this reason, opposition to sniping can be analyzed as more of a subjective reaction to simply losing an auction for the usual reason (not bidding high enough), than a reaction to a "dirty trick". In other words, you would have still beaten the sniper if you'd placed your maximum bid higher than the sniper is willing to pay.

However, if the minimum bid increment is very low, the Sorites paradox
Sorites paradox
The sorites paradox is a paradox that arises from vague predicates. The paradox of the heap is an example of this paradox which arises when one considers a heap of sand, from which grains are individually removed...

 can come into play, and make it difficult for a person to establish a single maximum bid http://www.juliansanchez.com/2004/06/23/preferences-sorites-and-ebay/. For example, if the minimum bid increment on an auction is 10 cents, it can be difficult or impossible for a person to identify a price which they would be willing to pay to win the item, but they would not pay 10 cents more. The fear that 10 cents may make the difference between getting the item and losing it to a sniper can trigger unusual behaviour, such as deliberately bidding strange amounts (such as $274.81) to make it hard for snipers to guess the minimum required to outbid the current winner.

CAPTCHAs

One attempt to defeat automated bid sniping software is requiring bidders to pass a CAPTCHA
CAPTCHA
A CAPTCHA is a type of challenge-response test used in computing as an attempt to ensure that the response is generated by a person. The process usually involves one computer asking a user to complete a simple test which the computer is able to generate and grade...

 test prior to entering their bid. This ensures that all bids are entered manually. The counter for this is for the software to re-direct the CAPTCHAs to a CAPTCHAs reading service.

Final Extension

Some online auction systems attempt to discourage sniping (manual or automatic) by automatically extending the auction time if a last-minute bid is placed. This approach leaves all bidding open
English auction
An English auction is a type of auction, whose most typical form is the "open outcry" auction. The auctioneer opens the auction by announcing a Suggested Opening Bid, a starting price or reserve for the item on sale and then accepts increasingly higher bids from the floor consisting of buyers with...

, and allows any bidders who are watching during the final few minutes to raise the bid. It can also lead to last-minute automated out-of-control bidding wars between bidders, which can extend the bidding time long beyond what the seller desired, greatly raising the final selling price. Any site which implements a limit to the number of time extensions allowed simply causes a final extension snipe.

Buy It Now

Some auction systems, such as eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...

, allow buyers to end an auction early by paying a predetermined final price for the item (generally substantially more than the minimum bid). This may discourage some sniping because another bidder can simply purchase the item outright while the sniper is waiting for the auction end time. Although if they did snipe for the item they could get it for substantially less than the Buy It Now price. In eBay this Buy It Now option disappears after the first bid is placed, and so the deterrent relates only to items that have yet to be bid on. In this case a sniper can switch the sale to an auction suitable for sniping by placing a very low bid on the item early on to make the Buy It Now option disappear, clearing the way for a snipe and preventing any other potential buyers from ending the auction early by buying the item at the Buy It Now price.

Articles and news reports

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