I bid on a dining table in an online auction and won. Then I realised that it won’t fit through the door of our slightly small apartment. D’oh!

So I explained my mistake to the seller and asked them to re-auction it again, with a promise to pay them the difference if the selling price the second time turns out less than what I bid the first time (plus the extra fees charged by the auction site). I also offered to compensate him/her for the hassle by paying a little extra money. I even offered to pay the full amount up front, and let the seller pay me back the second time selling price, lest they think I was trying to scam them.

As an economist I thought this was highly reasonable, however my offer has been met with deathly silence, so I am worried that I have caused some offence. Maybe it was the offer of compensation for the hassle (I offered 25 dollars)? Perhaps I should read more behavioural economics literature?

An added complication is that the seller is moving house and stipulated that the item must be picked up within the next few days, thus time is running short to conduct a new auction.

Anyone want a dining table??!

Techdirt reports that eBay has banned auctions and fixed-price sales of digital goods like music files and e-books. Now such products can only be sold via classified ads, which do not directly lead to transactions via eBay.

eBay’s primary concern seems to be the potential for sellers of such goods to manipulate the feedback system. Since digital goods are not scarce, a seller can easily sell thousands of copies of the same file (perhaps at a low price) to quickly build up a good reputation. Having done that, they could use their good reputation to scam people. As eBay says, trust is crucial in their marketplace, and defending the integrity of their reputation system is obviously more important to them than any revenue they might lose from banning sales of digital goods.

Somehow I can’t help thinking that something better than banning could be done. What about setting up a digital goods category for auctions where no reputation points apply? Can auctions really not work at all without a feedback system? Or maybe this has opened up a market niche for someone to set up an auction site specialising only in digital goods?

This Australian guy, Ian Usher, is selling his entire life by auction on eBay in order to make a fresh start after getting a divorce. He’s selling his house, car, furniture, underpants, everything, all in one bundle.

My first reaction was that, aside from the good publicity he’s got from this stunt, the whole might be worth less than the sum of the parts here. I mean, it might not be such a good idea to sell everything together all in one bundle. It’s unlikely that anyone else has exactly the same tastes as Ian, and so I thought he might get more by splitting his stuff up and selling each piece separately.

Then I realised that the buyer can do exactly that — resell the bits that they don’t like on eBay. So the selling price that he gets for the bundle should be the sum of the values of the individual bits, minus the total transaction cost (eBay fees + cost of time) of selling the bits.

Now the question about whether to bundle or unbundle basically comes down to transaction costs. If Ian personally has low transaction costs (low opportunity cost of time, for example) compared to the average eBay buyer, then he’d be better off selling everything separately. If he has relatively high transaction costs then he should sell the bundle and “outsource” the individual transactions.

I guess there is a testable hypothesis here. When getting rid of old stuff on eBay, we should expect high income people (high opportunity cost of time) to sell things in bundles, and lower income people to sell things separately.

I just came across tribber.com, which runs bizarre auctions for various products. You submit a single bid, and the winner is the one with the lowest unique bid. The unique part is important — if two people bid 1c and one person bids 2c, then the 2c guy wins. The site basically seems to be a marketing gimmick (I found it via an ad on Facebook).

Since the items for sale have known values, the auctions are common-value with full information (the object is worth the same to everyone and everyone knows how much that is). The optimal bidding strategy seems to depend on the number of bidders. Suppose the object is worth $10 and we have to bid in multiples of $1. If there are two bidders, both will bid $1 and one of them will be the winner (chosen at random). Neither has an incentive to raise their bid since that guarantees a zero payoff.

However if there are three bidders then the equilibrium seems to be that two bid $1 and one bids $2, and the $2 guy wins. A $1 bidder can’t do better by bidding $2 (or more) since the other $1 bidder would then be the winner. And the $2 bidder is worse off if he bids $1 since in that case he’s only the winner with probability 1/3. Bidding higher than $2 doesn’t make sense either. However since the bidders are identical, we can’t say who plays which strategy. So there’ll be a mixed strategy equilibrium where people randomise over bidding $1 and $2.

It gets tedious but I think as the number of bidders increases, people start randomising over a wider range. I think people will always play $1 with some probability, but the weight on higher bids increases with the number of bidders.

Since anyone can enter these auctions, the possibility of getting a Macbook Air for $1 should attract a lot of bidders and reduce the expected returns from playing to essentially zero. As I said it’s a gimmick.

I wonder if tribber borrowed this idea from Felix Salmon?

I was a little surprised to see that eBay is changing its feedback system and sellers will no longer be able to give negative or neutral feedback about buyers. Sellers can still give positive feedback, and buyers can give any kind of feedback as before. The feedback system is what prevents eBay from being destroyed by a tsunami of adverse selection, so it’s a pretty big deal for them to change it in this way.

First of all I don’t really see the point of allowing sellers to place positive feedbacks about buyers if negative feedbacks are not allowed. A buyer’s feedback then doesn’t really give any more information than the number of trades that the buyer has completed.

More importantly, I can think of some circumstances where providing negative feedback about a buyer would be useful. For example, if buyers do not follow through and pay up on their winning bids, or do not pay attention to the auction description and subsequently make an unjustified complaint about the goods that they received. Also, this change means that sellers no longer have any power to retaliate against buyers who leave unjustified negative feedbacks. In the feedback game, it seems to give more power to buyers compared to before. eBay says this is exactly what it intends, and it is sellers who are abusing the system by leaving retaliatory negative feedback about buyers most frequently. In addition, the custom in online auctions is for the buyer to send payment first, and the seller to send goods later. This custom means that buyers are taking a greater risk than sellers, so perhaps biasing the feedback system in their favour is a sensible thing to do.

Overall it seems like there are a number of tradeoffs involved, and it’s not immediately clear whether this change will improve the feedback system’s ability to prevent fraud in auctions. I’d be very interested to know what kind of analysis eBay did to support changing the rules.