Ebay's Proxy System: A License to Shill

27 Pages Posted: 11 Nov 2004

See all articles by Joseph Engelberg

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Jared Williams

University of South Florida

Date Written: November 10, 2006

Abstract

We introduce a bidding strategy which allows the seller to extract the full surplus of the high bidder in eBay auctions. We call this a Discover-and-Stop bidding strategy and estimate that 1.39% of all bids in eBay auctions are placed by sellers (or accomplices) who execute this strategy. We argue that this kind of shill bidding is unnecessarily effective due to eBay's proxy system and the predictability of other bidders' bids. We show that eBay could slightly modify its auction mechanism to reduce the shilling we describe. We also model eBay auctions with shill bidding and find that, in equilibrium, eBay's profits are higher with shilling than without it.

Keywords: eBay, eBay Auctions, Shill bidding, Shilling, Incremental bidding

JEL Classification: D44, K42

Suggested Citation

Engelberg, Joseph and Williams, Jared, Ebay's Proxy System: A License to Shill (November 10, 2006). Available at SSRN: https://ssrn.com/abstract=616782 or http://dx.doi.org/10.2139/ssrn.616782

Joseph Engelberg (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Jared Williams

University of South Florida ( email )

Tampa, FL 33620
United States

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