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first and foremost, I'm not an economist, probably a scientist though. In my country the most popular way to buy and appartment or a house is by first-price-auctions (the highest bid takes it all). Rules are simple : bids ends up at a specific time, you can only bid online, and each bid has generally a 30min validity (meaning if no one bids higher than you in these 30min, and if you are the highest, you get it.) We also don't know who's bidding, if there's 2,3,4,x people bidding on the same good.

Each appartment has a "showing price", and from my experience, bids starts at -10%. Nevertheless the market is pretty down these last weeks/months, and only very good value appartments are sold, often higher than the showing price.

My question is simple : I tried to look in scientific reviews, what are the strategies to bid better as a buyer (i.e. lowering the final price as much as you can), but still it is hard for me to get into general applicable strategies.

For instance, is bidding systematically the minimum bid over another offer a good strategy to limit final price? (if I bid +100 USD each time to another bid, will it statistically at the end make me win with a lower price?) Or, if I wait until the last minute to bid, is it a better strategy than bidding asap ? Do the trick with uneven number work to lower the final price? (offer of 12458$ for instance, instead of 12500USD)

I have been looking into bibliography for a while, but I haven't found any solid argument.

Maybe you guys know a bit more than I do? :)

Cheers !

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The kind of bidding strategy depends upon the auction environment' i.e, whether the players are bidding independently, or do their valuations(hence, bidding value) depend on the valuations observed by other players as well(in mathematical terms, the random variables are not independent). Both the environments will have different bidding strategies.

For the independent case, players do not take into account the possible valuations observed by others while bidding. Whereas, incase of interdependent valuations, players do take into account the valuations observed by others while making a bid.

I'm assuming you're interested in the interdependent valuations case. Well, in such cases one needs to specify the kind of correlation that exists between the players(players = random variables). If aggressive bidding by any one discourages others, then a negative correlation will exist, and suitable bidding strategies can be derived using the existing mathematical theory. Same goes for a positive correlation as well. The main point here is, that the winner will always take into account the valuations of the other players in an interdependent valuations environment, to avoid the 'Winner's Curse'.

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  • $\begingroup$ sorry for late answer. It's very interesting, so it's more observative than real theory. Are you aware of such interdependent studies ? $\endgroup$ – Bratten Dec 14 '18 at 14:34
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Interesting question, It can be dealt with with two models: economic theory and game theory (which, in turn, is the base for modern economic theory)

Game theory should be the most practical. To start if we simplify, we can assume that "everybody else" is one player In a turn based game, each provides his own minimal bid as long its the highest bid, That means that the response of each player, will be higher bid, until the maximal value will be reach, for the player with a maximal rate

So the end-game for each player, will the other's maximal bid + delta

Notice that the optimum has to arrive by playing and responding With an endless amount of players, endless amount of games, The market price will be the market price: The maximal price will be reached, based on the available supply. Once that sets, market price is a given known number, based on which a consumer will decide whether to buy or not = economic equilibrium...

So, to answer your question: you can and should play and respond to others' prices, but close enough to market prices (and of course, based on the unique parameters for each flat), simply to save the time and trouble

hope that helps, Guy

Game theory game tree

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  • $\begingroup$ Thanks Guy, very interesting indeed. My question was also about the behavioural theory : does some very aggressive bidding discourage other bidders? Let's say showing price is 200.000 USD, bidding the first time at 200.000USD would discourage other people to enter the game? So it's almost also psychological there ! Thank you for your answer, even if it still lacking a bit of appliable answers so far ;)) $\endgroup$ – Bratten Nov 22 '18 at 12:24
  • $\begingroup$ As long as there are "enough" bidders, the game will converge to rational behavior... in the end, one needs an apartment, if the high bid is still lower than the most he's will to pay, why should he care...? if its the market model, then we'll receive endless games with endless amount of player, we'll arrive at an equilibrium... if this is an apartment in the middle of nowhere, with a few players, than anomalies might occur $\endgroup$ – Guy Louzon Nov 22 '18 at 12:28
  • $\begingroup$ Sure (an upvote and mark as answered would be nice ;)) $\endgroup$ – Guy Louzon Nov 22 '18 at 12:50

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