Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet

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Abstract
Auctions on the Internet provide a new source of data on how bidding is influenced by the detailed rules of the auction. Here we study the second-price auctions run by eBay and Am- azon, in which a bidder submits a reservation price and has this (maximum) price used to bid for him by proxy. That is, a bidder can submit his reservation price (called a proxy bid) early in the auction and have the resulting bid register as the minimum increment above the previous high bid. As subsequent reservation prices are submitted, the bid rises by the minimum incre- ment until the second-highest submitted reser- vation price is exceeded. Hence, an early bid with a reservation price higher than any other submitted during the auction will win the auc- tion and pay only the minimum increment above the second-highest submitted reservation price. eBay and Amazon use different rules for end- ing an auction. Auctions on eBay have a fixed end time (a "hard close"), while auctions on Amazon, which operate under otherwise similar rules, are automatically extended if necessary past the scheduled end time until ten minutes have passed without a bid. These different rules give bidders more reason to bid late on eBay than on Amazon. We find that this is reflected in the auction data: the fraction of bids submitted in the closing seconds of the auction is substan- tially larger in eBay than in Amazon, and more experience causes bidders to bid later on eBay, but earlier on Amazon. Last-minute bidding, a practice called "snip-