The lot comes up for sale and the auctioneer crys out for bids and when no more bids are made, the lot is hammered down as sold, following the traditional song, "going once, going twice, the lot is sold to".

Any one interested in buying the lot can bid early in the process and may eventually drop out if the price rises above their interest level. A person can jump into the fray late in the bidding as well. When no one is willing to pay more than the current high bidder, the auction reaches a close.

      eBay is NOT a regular auction

The winner is the person with the highest submitted bid at that moment, even if there are bidders in the audience who would bid higher.

eBay auctions do not continue until one bidder reaches a point where no other bidder will pay more. eBay could easily change their system to do this, but they don't.
 

This style auction stirs up the emotions of the auction crowd. Competition is open and bidders face their competitors. Events from early in an auction affect events later in an auction.

But just because there is open competition does not mean that the prices realized are fair market value. Another group or another day could produce completely different prices realized. There is no invisible hand of the marketplace that makes an open auction best at setting a fair price. Some old hand bidders avoid open auctions where there are many rookies, with their dollops of emotions tossed into the fray, because prices realized get too high, and in fact are "not fair", as in repeatable.

Also consider an auction where many in the crowd are close friends who might not want to overbid one of the group who is chasing an item. The prices realized in that situation would be lower than expected.

For selling into a crowd of close friends, another auction style, a reverse auction, is a better style for reaching a fair (read higher, and perhaps repeatable) price.

In a reverse auction, the auctioneer proposes a very high price for the lot and crys out for a bid. He lowers the asking bid price slowly until a bid is taken. The first bidder willing to pay the asking bid price wins the lot. This prevents the dynamics of friends in the crowd staying quiet after one of them bids, to avoid competing with each other. There is less knowledge of someone's interest until they bid and win the lot.

In another style auction, bidders place their bid amounts into sealed envelopes and deliver them to the auctioneer by a certain date and time. At the publicized date and time, all submitted bids are opened and a winning bid is selected from among those submitted by the deadline. This is a sealed bid auction.

This is how some development projects are priced, where the project is awarded to the low bidder. Sale of some kinds of goods, (for instance, rights to broadcast frequencies, and allocations of crude oil) is done is this way, awarding the item to the highest bidder

A sealed bid auction is best for business deals that are defined as fair because emotions do not play a part of establishing the fair market price. This makes sealed bid auctions very civilized and polite.
 

      eBay is a sealed bid auction

One thing that can happen is that tire kickers and bottom feeders are tossed out of the mix. Potential bidders who would not make the cut are priced out of play. This lowers the work of opening final bids because a threshold is established, and only those who would bid more can participate.

But what about the effect on players who can participate, and who value and want the item.

One effect is the bigger fool effect. A bidder who has set a bid price in mind will adjust their bid upward in light of seeing a smaller fool offer more.

"If that guy is willing to pay that much, then I'd pay more."

Another effect is the mistaken judgement effect. A bidder who has set a bid-price in mind will re-think their bid after seeing another bidder offer more.

"Maybe I was wrong in my estimate. That guy offered that much, before the end of auction, so it must be worth more than I thought."

The final effect is the close-call effect. A bidder who has set a bid price in mind will re-think their bid after seeing another bidder offer slightly more, not wanting to lose by a small amount.

"I would pay a little more than that guy's bid. No reason to lose this over a few bucks. I'll try just a little higher."

eBay's rule to let early sealed bids be public allows emotions to be part of the bidding process. The emotions of an open bidding auction are mixed in with the rules of a sealed bid auction. It is this mix which confuses and distresses many people who first experience sniping.
 

This is a short term win for the seller. If the price realized is out of whack with other lots of the same item, then most likely the buyer will find out and get pissed. This could lead to non-payment, or simply losing the buyer as a future customer. Sniping generates a fair final bid and this is a long term win, even for the seller.

Some buyers enjoy the fame of being high bidder throughout an auction, and will bid often to keep on top.

However, a serious buyer wanting an item and wanting to pay a fair price for it, would rather that the bids remain sealed until the end. This is the conservative businessman model of having stable prices, reflecting understood conventions, with confidence that fair prices are understood by those in the know and should not be influenced by rookies and passers-by.

In practice, on eBay the only way to make your bid stay sealed and unknown until the end, is to wait until the end to bid. This practice has been given the name snipe, as in

"I sniped that puppy and won it for half of what it's worth",

"I sniped that lot, and no one else had put in a bid for what it was worth so I got it at a bargain."

This negative judgement against last minute bidders is normally done by newbies to eBay, perhaps journalists on a happy assignment to bid on something on eBay and report about it, who are rudely woke up by serious players trying to get what they want at a fair price.

Most reporting about the end-of-auction bidding explain it as some sort of mean-spirited cheater doing the nasty. When in reality, it is just a hard working person trying to get something at a fair price that is not inflated by rookies.

The other people who are put out by losing to a last minute bidders are the sharp shooters who think they have a bargain in hand, having only bid a fraction of the worth of a lot but still holding high bid. When their almost-theft is denied them by someone doing a last moment fair market bid that tops them, they get angry and call the last moment bidder a jerk and worse.

Any of you readers ever get a message from a second place bidder telling you that? I have, and that is why I've written up this page to explain that I'm not a criminal nor a low life, even if I do buy a lot of items that are from the Mature Audience area and shown as Private when you check my bidding history.
 

In order to have a concrete example, let's use this scenario:
Joe sees a nice copy of a book he'd like to own with opening bid of $0.99 and he sets $25 as his price point for buying it. Mary also sees it and sets her price point at $17.50.

Consider the case where Joe bids his full bid as a proxy just after the auction starts following the model promoted by many to bid your max at the start. Mary sees this same lot just after Joe placed his bid and she has her price point in mind and starts to bid. How does that play out?

We can imagine the simple view that all the bidders submit a fair bid without regard to the current bid amount and that proxy bidding processing occurs and the high bidder wins. This is possible, but let's stay real about how bidders are affected by seeing an early bid amount.

When Joe submitted his bid, it was a proxy bid that eBay executed just enough to for him to be high bidder. This puts him as high bidder with a bid amount showing of 0.99. Mary's first view of the lot shows it at a low $0.99 with Joe as high bidder. Mary recognizes it as a deal, way below the price she would pay. She jumps right in, but since she is new to eBay, she engages in the auction as if it were an antique auction where she expects she should bid up and become high bidder so she can win.

She submits a bid of $1.50 The result she sees is that Joe is still high with a bid of $1.75. This is because eBay's proxy system represents Joe's proxy bid against any other bids, following the rules of bid increments.

Let's say that Mary is a stubborn rookie and continues bidding just a little bit more than Joe each time. Afterwards, we'd see the bid history looking like this.

Consider the case where all interested bidders do a sealed bid that stays unknown. Or in the eBay world, wait until the last 10 seconds to bid so that the publication of the bid is done too late for anyone to react.

Each bidder is putting in their fair bid of what they would pay for the item, without passion or emotion. It's just an economic decision. The high bidder wins, and no one has grounds for anger toward any other bidder. It's just business.

In our example, this means the two bidders submit their bids as proxy bids to eBay 10 seconds before the auction end time. The winning bid would be Joe at $18.00, one bid increment above Mary's $17.50.

The bid history would look something like this:

What this shows is that if a buyer waits until the last moment to bid, they will always pay the lowest winning price possible. If they bid early and win anyway, it is very likely they will pay a higher price than if they waited until the end to bid.

In some areas, bidders are recognized and used by other bidders as "pointers". The bidders who are hard working scouts, bidding early on every cool item, are tracked by other shoppers who use eBay's search tools to find items that these scouts bid on. It is an easy way to discover the "good" items that are out there. If you are a scout doing this early bidding, you should stop now. You should not lead the world to all the good stuff you find by doing your bidding early. Instead, you should wait until the final seconds and bid then.This will increase your chances of winning the good item you worked hard to find.

There are still some good reasons to bid early. First, by establishing your interest, you may warn off other bidders, perhaps your friends, that you want the item. This aspect is the key dynamics of all public auctions where friendships exist. And friendships exist in the eBay world. Even though it is a huge market in general, every specific section is aimed at a small group who get to know each other, or at least recognize each other as regulars. Sellers probably hate to see friendships stop competition on their lots, but this is just the other side of passionate obsessive competition among non-friends. Both cases come with public auctions.

eBay has changed the way it works recently that makes it more difficult for friends to signal each about their interest. Many lots now show the bidding history using generic names for the bidders instead of their real eBay handles.

Because of the buy-it-now options and the number of negotiated sales before an auction ends, it is sometimes good to bid a low amount early to put some inertia into the process of the seller closing an auction early to sell it direct to someone else.

Another good reason to bid early is if the alternative is not to bid at all. If you are not going to be around at the end-time of an auction, then you should bid early in order to have any chance of winning. Although you may not get the lowest price for the lot, you at least have a chance to win the lot.

But this reason is no longer a good one.

There are too many tools around now for automating last-moment bidding.
 

The same feature of entering last moment bids is also available as a desktop application.

These services allow you to have a life outside of eBay.

And they allow you to take back your bid much easier than on eBay. When you use these tools, the bid you request is not actually done until the end-time of the lot.

You can register an intent to bid days before the auction ends, and then cancel your intent before the auction lot actually ends. There is no complicated process to withdraw a bid as there is on eBay. This is a convenient way to shop eBay, using the sniping service as a wish-list, with the ability to remove the item before auction's end time.

Desktop versions require that your machine be on and connected to the net at the time of the auction. Most will autodial to get a connection if your PC is not connected. I have some desktop tools but never got around to using them before discovering the convenience of net based services.

I've been using AuctionSniper, a net based sniping service, and have found it very convenient to use. I just paste the auction number into a dialog box along with my intended bid amount, and then submit it. The same page for entering bids also shows all the lots I currently am sniping.

AuctionSniper is at http://wwww.auctionsniper.com.

AuctionSniper works for lots in the Mature Audience section of eBay.
It is the only web based tool that can be used to snipe in the Mature Audience area.

One difference between desktop based tools and web based tools is that you must give your eBay id and eBay password to a stranger when using the web based tool. I've never had any problem with this while using AuctionSniper.

If you appreciate my analysis and explanation of sniping and you want to try out a net based sniping tool, thank me by signing up at AuctionSniper using the button below. You can sign up for a few free snipes to see how it works. I think you'll be hooked on it after trying it out.

Bookmark this page and pass it on to your friends when they see you enjoying your life again, now that you have learned how to be a winning bidder on eBay without needing to be near a machine when an auction ends.