Revenue Non-Equivalence between Auctions With Soft and Hard Closing Mechanisms: New Evidence from Yahoo!

Abstract

Many online bidders place bids seconds before the auction's close, a practice known as "sniping." Most theoretical explanations argue that sniping lowers the expected selling price. We examine the revenue effect of sniping by analyzing the revenue differences between auctions with a hard-close ending rule versus those with a soft-close ending rule. Since in a soft-close ending rule there is no rational motivation for sniping, the difference in revenues can be attributed to the effect of sniping. We found selling items using the soft-close mechanism increases the selling price by almost $40 (or 19%) over the hard-close format. We claim that lack of experience could help explain why not all sellers use the soft-close ending rule. However, we cannot explain why auction sites such as eBay only allow sellers to employ a hard-close format.

Keywords: Auction, Sniping, Ending Rules

JEL Classification: D44