Bidding process in online auctions and winning strategy: Rate equation approach

Abstract

Online auctions have expanded rapidly over the last decade and have become a fascinating new type of business or commercial transaction in this digital era. Here we introduce a master equation for the bidding process that takes place in online auctions. We find that the number of distinct bidders who bid k times up to the t th bidding progresses, called the k -frequent bidder, seems to scale as nk (t)∼t k-2.4. The successfully transmitted bidding rate by the k -frequent bidder is likely to scale as qk (t)∼ k-1.4, independent of t for large t. This theoretical prediction is close to empirical data. These results imply that bidding at the last moment is a rational and effective strategy to win in an eBay auction. © 2006 The American Physical Society.