Saturday, November 14, 2009

Off Topic: War and Auctions

Paying a Price for the Thrill of the Hunt

By RICHARD H. THALER, The New York Times

Excerpt:

IF a business school professor is running short on cash, there is a sure-fire solution: run a dollar auction game in class.

To start, the professor offers to sell the class a $20 bill. Bidding starts at $1 and goes up in $1 increments. The winner pays the professor whatever the high bid was, and gets the $20. Here’s the catch: the second-highest bidder also has to pay, but gets nothing in return.

Typically, a few brave or stupid students — nearly always male — open the bidding but fairly quickly only two bidders remain and they discover they are in a war of attrition. The bidding slows when someone bids $20, but then resumes with neither wanting to “lose.” If the two students are particularly stubborn, prices can go over $50. (The professor typically gives the money to charity, or claims to.)

The dollar auction game was invented by a pioneer of game theory, Martin Shubik of Yale, and it illustrates the concept of “escalation of commitment.” Once people are trapped into playing, they have a hard time stopping. (Consider Vietnam.) The higher the bidding goes, and the more each bidder has invested, the harder it is to say “uncle.” The best advice you can give anyone invited to play this particular game is to decline.

...

[Swoopo.com] sells new merchandise using unusual auction formats. Let’s concentrate on one of them, the so-called penny auction.

Typically an item — say, a laptop that retails for $1,500, is offered for sale. The bidding starts at a penny, and goes up in one-cent increments, but it costs bidders 60 cents to make a bid. Each auction has a scheduled closing time, but as the deadline nears, that time is extended by 20 seconds whenever someone bids.

The site’s home page displays several attractive objects for sale with closing times fast approaching. It is mesmerizing.

...

What makes this procedure so devilish is that while bidders are looking at what seem to be amazing bargains, the Web site is raking in the money. Because Swoopo collects 60 cents for each penny bid, its revenue is the selling price multiplied by 60. This means that if a computer you covet sells for $100, seemingly a bargain, Swoopo collects $6,000 in revenue, a very juicy profit.

10 comments:

Best Penny Auction said...

Hello
Nightcents is an Online penny auctions for new products with up to 90% off RRP.
Penny auction site is a great way to save You have probably heard of the penny auction but may be unsure as to what it is really about or how you can benefit from it. Many people will think that they have to bid by a penny but that is not the meaning of the title.
Penny Bid Auction

Penny Auction Online said...

Rather penny auction is not taken in good way but I am in fully support with penny auction as they have improved my lifestyle.

Penny Auction Script said...

Interesting sharing!
I really admire the information which you offered here and I enjoyed to read your post which is really good read for me.

Thanks for sharing!
Penny Auctions

Best E-Learning Software said...

Hi,
We have an site study8home, Which promised to provide complete e-learning website and software solution and strive for customer satisfaction. Our e-learning software powers your online education with reliability and predictable costs.

Thanks

GPS Tracking Device said...

Hi,
We are specialized in Advanced GPS Tracking Device including GPS Tracking System, GPS Fleet Tracking System, Real Time GPS Tracking and completing your requirement for Vehicle Tracking, Bike Tracking and Personal Tracking device at very affordable prices.

Thanks

Buy Digital Cameras said...

Hi,
Faljo.com is your online source for Online Auctions, Online Shopping, Car Auctions and much more. Buy and Sell with our Online Auction community today, the World's online marketplace. Just Sign up and begin to buy and sell everything in auction now.

Thanks
Online Shopping

Car Auctions said...

Hi,
Faljo.com is your online source for Online Auctions, Online Shopping, Car Auctions and much more. Buy and Sell with our Online Auction community today, the World's online marketplace. Just Sign up and begin to buy and sell everything in auction now.

Thanks
Online Shopping

GPS Navigation Device said...

Hi,
Soniksecurity offers you a wide selection of Vehicle and Home Security Products. We carry a wide variety of Security and Safety products like Vehicle Tracking System,GPS Navigation Devices,Vehicle Rear View Camera,Waterproof IP Camera,Wireless Ip Camera at very affordable prices.

Thanks for sharing!
Vehicle Rear View Camera

Ebay Clone Script said...

Nice Sharing!
We transform ideas and information into innovation, action, flexible delivery and rapid deployment and provide all the features you need to create professional and high quality Ebay Clone Website through our Ebay Clone Software.

Thanks for sharing!
Ebay Clone Software

Guaranteed SEO Services said...

Nice Post!
I am really glad to found your post in which you offered interesting information. It is really good read to me.

Thanks for sharing information!
Best SEO Company