Strategic Late-Bidding in Continuous-Time Second-Price Internet Auctions.” Working paper

Many bidders in second-price Internet auctions with a fixed end time ‘snipe’, i.e. they submit their bids in the closing seconds of an auction. Late bids of this sort are much less frequent in auctions that are automatically extended if a bid is submitted very late. We propose a model of continuous-time second-price Internet auctions and show that sniping in a fixed deadline auction can occur at equilibrium. Equilibrium sniping need not only result from common value properties of the objects being sold, but can occur even in private value auctions. The reason is that very late bids have a positive probability of not being successfully submitted, and this opens a way for bidders to implicitly collude and avoid bidding wars. Unlike the case of sealed bid second-price auctions, bidders in these continuous second-price auctions have no dominant strategy, and so multiple equilibria in undominated strategies exist. Sniping in fixed-deadline auctions also arises away from equilibrium, as a best reply to incremental bidding. The strategic advantages of sniping ar