Modeling online auctions with proxy-bidding: Ascending versus Sealed Model

This paper presents several empirical tests of the hypothesis that eBay bidders bid “as if” they are in a sealed bid auction. The tests rely on observations of the magnitudes and timing of top two proxy bids. We apply the tests to data from three eBay markets MP3 players, DVDs and Chevrolet Corvettes. All tests reject the sealed-bid model in all three datasets, and a significant portion of auctions in each dataset is better described by an ascending-bid model. A detailed test assuming independent private values rejects the sealed-bid model even in an otherwise “plausibly sealed” subset of the data which does not conform to the ascending-bid model. Given these findings, demand-estimation using eBay data is more difficult than previously thought. In particular, the results suggest that the empirical strategies based on multiple order-statistics of the bidding distribution as in Song (2005) will not work. Contact: Robert Zeithammer, Graduate School of Business, University of Chicago, 5807 South Woodlawn Ave, Chicago, IL 60637. email: [email protected]