Common-values or a rational response to irrationality? Evidence on the drivers of last-minute bidding in eBay auctions

This paper utilizes a novel data set containing 29,972 auctions of iPhones and estimates how two distinct considerations drive last second bidding, known as sniping, in eBay auctions. Sophisticated bidders have two primary reasons to snipe: the potential presence of irrational bidders (behavioral reasons), and a desire to conceal information about private signals in a common-values setting (rational reasons). We identify the share of sniping driven solely by behavioral reasons by estimating sniping prevalence in auctions for new iPhones, which are assumed to have independent private values (IPV). We compare this to observed sniping in auctions for used iPhones in a variety of conditions, all of which have an uncertain common-values component, and develop a simple theoretical model showing that rational and behavioral reasons are complements in driving bidder behavior. Our results suggest that sniping driven by behavioral considerations occurs roughly 54 percent of the time in an average IPV auction and that sniping is significantly more common in auctions with a common-values component.