Reverse price auctions
January 16, 2006 8:28 AM   Subscribe

Lowest-unique-bid auctions. What's the rational approach?

Lowest-unique-bid auctions probably aren't auctions at all, but that's the common name for them. They work like this:
  • The seller places a high-value item up for "auction".
  • Each buyer makes one or more sealed bids.
  • Each bid costs the buyer some money (typically the cost of a premium-rate SMS or phone call).
  • The person who makes the lowest unqiue bid wins the item for that price.
So... as a buyer, what's the best approach? Bid low? Big high? Multiple bids?

Is there a "best" here at all, or is this a just a lottery by any other name?
posted by Leon to Grab Bag (24 answers total)
 
er, why not just bid zero?
posted by delmoi at 8:33 AM on January 16, 2006


er, I see. Actually it just seems like a lottery to me. Although presumably you could run one yourself, collect data on bid distribution, and in the future bid in the local minima.
posted by delmoi at 8:35 AM on January 16, 2006


Because, Delmoi, other people will probaby bid $0 as well, and then the bid is not unique and does not win.

I don't know if there is a best, fixed strategy for this type of auction- it depends on the number of bids and the value of the object.

It seems like a random chosen bid for under approximately 1/3 of the value of the object would be a good place to start.
posted by gus at 8:37 AM on January 16, 2006


That's not an auction, that's a scam.
posted by Malor at 8:38 AM on January 16, 2006


Yeah, the only "approach" is trying to figure out what other people will bid. There's about as much strategy as rock, paper, scissors.
posted by danb at 8:42 AM on January 16, 2006


Agreed, sounds like a scam to me. Or, at best, a lottery. Which I guess is pretty much the same thing. A quick search found a couple scam-ish looking sites, with a £10 fee for each bid (up to 5 bids).
posted by antifuse at 8:43 AM on January 16, 2006


This business model, if I can call it that, is a sneaky way to get around the Gambling Act - they're adding a level of 'skill' into what is basically a lottery so that they lose one of the three conditions of gambling (prize, bet, luck).

Not that it needs explaining, but they'll make their money back in spades via the SMS fees, and even get extra cash out of the 'winner' (quite possibly more than the cost of the prize to the group running the competition).
posted by lowlife at 8:57 AM on January 16, 2006


delmoi: Funny you should say that... I'm currently coding a platform that would support this, hence the question.

I'll probably get real data eventually, but I'm curious as to whether there's a theoretical approach.

I suspect that the "game theory" approach is to bid at (cost of item) - (cost of bid), but that's just intuition.
posted by Leon at 9:00 AM on January 16, 2006


Again, why not just bid 0? The entire concept of the game seems flawed.
posted by malp at 9:20 AM on January 16, 2006


Basically, you're forming a cartel where everyone involved agrees not to bid 0. Too bad cartels don't work since everyone involved has a strong incentive to go against the cartel.
posted by malp at 9:32 AM on January 16, 2006


Because if you bid zero, and someone else bids zero, then you don't win. And it's such an obvious bid, that someone's bound to bid it, and thus you're bound to lose.

The general idea from the scammers side is that two things will happen:

1) a whole bunch of people will blanket the lower end numbers, bidding 1, 2, 3, 4, 5... and paying the bid fee each time, thus generating pure profit.

2) a whole bunch of people will blanket the lower end numbers, thus driving up the lowest unique bid to a reasonable level, thus generating more profit.

Conveniently, those two things are actually one thing, and they work out nicely in the favour of the person running this 'auction'.
posted by jacquilynne at 9:34 AM on January 16, 2006


Interesting problem. Do you get to find out what the winning bid was on previous "auctions"? Is the smallest unit of bidding $1.00, $0.01 or something else? Do you know how many other players there are?
posted by justkevin at 9:39 AM on January 16, 2006


Justkevin: 1) No 2) it doesn't make any difference but typically penny increments, and 3) no, though you can assume enough players to make the game and its advertising profitable.

I think danb nailed it most elegantly - this is rock-paper-scissors, and there's no clever solution. Thanks everyone.
posted by Leon at 9:44 AM on January 16, 2006


I've never heard of lowest unique bid auctions but this place does highest unique bid auctions. However, I think it's a scam or run by idiots as they've been spamming Craigslist.
posted by Manhasset at 10:41 AM on January 16, 2006


The (UK) Times newspaper ran a series of lowest-bid auctions for charity over the Christmas period through a third party website: some results are here.

This shows that in one case, a 30Gb iPod was won with a £2 bid. Other iPods went for between £10 and £33.

No whiff of a scam: heck, it's The Times.
posted by freston at 8:48 AM on January 17, 2006


You can't bid negative numbers, right? :D
posted by aubilenon at 2:19 PM on January 17, 2006


I've never heard of lowest unique bid auctions but this place does highest unique bid auctions. However, I think it's a scam or run by idiots as they've been spamming Craigslist.

Umm... so does this place, technically... :) Although the one you linked to seems to set a cap on how high the bids can go.
posted by antifuse at 4:26 AM on January 18, 2006


Ebay works on HIGHEST unique bids, not on LOWEST unique bids. Someone else linked to the Auction-Air site before
http://www.auction-air.com/reverse_auctions/index.html?LHcol_txt
and this explains the rules more clearly. It is not a scam if there is a limited number of bids e.g. for a £200 ipod you could have a maximum of 100 bids at £2 and the seller would be guaranteed £200 back plus whatever the bid is. The lowest unique bidder gets the ipod for their bid plus the stake. I've won one this way for a £20 outlay. In terms of strategy, its worth placing a few sequential bids e.g. 10/11/12/13/14. Avoid the ones where there are not a limited number of bids as you have a lot less chance of winning.
posted by janecr at 5:45 AM on January 18, 2006


Umm, I was responding to the fact that Manhasset linked a site that does highest unique bid auctions. :)
posted by antifuse at 6:13 AM on January 18, 2006


Sorry antifuse, other posts got in the way
posted by janecr at 12:44 AM on January 19, 2006


I used one of these sites last week.

Bidclever

and it definitely wasn't a scam. Although i guess there is no real definitive theory on how to choose the lowest unique bid, what I liked about it was that they limited the bids. I bid on a Lost Series 1 DVD. There are only 40 bids so I know I stand a good chance of getting it. They gave me a unique ID which apparently is shown, along with all the other bids when the auction closes. They're doing a free auction too for an iPod at the moment so you can test your theory.

I think the ones that promise the earth are scammers but this one seems to be pretty transparent. Auctionair seem to be alright too.
posted by froufrou at 2:30 AM on January 23, 2006


oops www.bidclever.com
posted by froufrou at 2:31 AM on January 23, 2006


interesting - this is what i've found:

in the UK there are a number of these "lowest-unique bid" wins sites - bidclever, cheekybid, hilow and the list continues - they are all a form of gambling or lottery, raffle (whatever you wish to call it) since you have to pay for the entry - and while there is a modicum of user intervention there is no skill in it. the outcome is strictly by chance (unless it is rigged) and therefore gambling.

interestingly, in the US the regulations make these a form of lottery due to the out come being by chance and outlawed - no consideration is permissible (payment that is) on a per bid basis – only States are allowed to run lotteries. as a result, these are strictly (or at least are supposed to be) free to enter if offered. As a sweepstakes they must be free to enter and can may be used as a marketing / promotion channel.

i've found two sites offering it in the US - redtoucan.com - a new and what seems to be a solid social network site and is completely free to participate in. then there is 41414.com (search me?) that appears to be treading a very thin line between being free and charging! Bid entry is by SMS, similar to HiLow in the UK.

Anyhow, hope that helps – and if you are looking for stats, Redtoucan offers previous auction history with the full disclosure of the bids – pretty neat.
posted by Guille at 10:41 PM on April 14, 2006


I won on Bidclever 3 weeks ago and I can tell you it isnt rigged!
posted by froufrou at 2:56 AM on April 17, 2006


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