Recently, some mainstream e-commerce web sites have begun using "pay-per-bid" auctions to sell items, from video games to bars of gold. In these auctions bidders incur a cost for placing each bid in addition to (or sometimes in lieu of) the winner's final purchase cost. Thus even when a winner's purchase cost is a small fraction of the item's intrinsic value, the auctioneer can still profit handsomely from the bid fees. Our work provides novel analyses for these auctions, based on both modeling and datasets derived from auctions at Swoopo.com, the leading pay-per-bid auction site. While previous modeling work predicts profit-free equilibria, we analyze the impact of  information asymmetry  broadly, as well as Swoopo features such as bidpacks and the Swoop It Now option specifically. We find that even small asymmetries across players (cheaper bids, better estimates of other players' intent, different valuations of items, committed players willing to play "chicken") can increase the auction duration significantly and thus skew the auctioneer's profif disproportionately. We discuss our findings in the context of a dataset of thousands of live auctions we observed on Swoopo, which enables us also to examine behavioral factors, such as the power of aggressive bidding. Ultimately, our findings show that even with fully rational players, if players overlook or are unaware any of these factors, the result is outsized profits for pay-per-bid auctioneers.
['John W. Byers', 'Michael Mitzenmacher', 'Georgios Zervas']
Information asymmetries in pay-per-bid auctions