[rahimnathwani]

With eBay proxy bidding, you tell eBay what the maximum is you are willing to pay. Then, if you win the auction, you don't pay your maximum. You pay just above the maximum amount of the bidder you beat (i.e. the person who would have won if you hadn't participated).

So, how should you bid if you are a rational person? You should bid the maximum you are willing to pay. As there is zero chance that you will pay more than you needed: you will always pay just enough to beat the second place bidder.

So, the incentive is such that you reveal your maximum price to eBay.

[aelhaji]

The eBay application isn't really appropriate because eBay always reveals the highest bid, which removes the incentive to reveal if you have a lower willingness-to-pay. A pure application of the Vickrey auction gives all participants an incentive to reveal their maximum willingness-to-pay.

[rahimnathwani]

"eBay always reveals the highest bid, which removes the incentive to reveal if you have a lower willingness-to-pay"

I don't understand how it removes the incentive? Would you mind going into more detail?

(I ask because I believe I am rational when I place eBay bids, and I always choose the actual maximum I'm willing to pay.)

[aelhaji]

Let's say that the first bidder placed as a proxy bid $100 but eBay only shows $1. This will already exclude everyone who has a maximum-willingness-to-pay lower than or equal to $1. A second bidder might put as a proxy bid $120. This wil result in eBay setting the highest bid at $101. At that price nobody with a maximum willingness-to-pay lower than or equal to $101 will reveal their max. The Vickrey auction doesn't reveal anyone's bid and, thus, you collect a lot more bids (demand curve data). I agree with you, however, that the eBay mechanism results in the same person winning the auction.

[zzleeper]

When I bid on coins I NEVER bid the actual maximum on ebay; I just use gixen.com and place my actual willingness to pay there.

The reason is that for most goods (luxury goods, stuff with resale value, stuff where you might now all the details, etc.) you are actually dealing with a common value auction, so you DON'T want to reveal your cards before hand.

For instance, suppose I see an auction with 5 existing bids.. I stop and say wait that's probably something interesting, and start doing a bit more research on the value of the coin.

Similarly, I might do some quick research and decide that a coin is valued at $10, but if I see bids at $100 that means that either my prior was wrong or the bidders are wrong, and thus I do a bit more research and try to see if there is anything special about the coin (e.g. the quality is actually higher than what the auction description says).

Then besides all these rational motives, you have the irrational ones. A lot of people bid on things almost like gambling (bid the maximum+1, if that doesn't make them the highest bidders, then keep bidding). If you don't place your bid out there, you prevent this problem altogether. [1] https://en.wikipedia.org/wiki/Common_value_auction