Cheap Talk - Econ and game theory from Jeff Ely and Sandeep Baliga

cortex — Wed, 18 Nov 2009 16:33:53 -0800

On pinball's downfall; draft Scrabble; strategies for choosing a seat; visiting our old friend, swoopo.com; and meatball theory: various and sundry economical, game theoretical, and miscellaneous morsels from the folks at Cheap Talk.

The Dollar Auction and Swoopo

Zarkonnen — Wed, 01 Oct 2008 14:10:53 -0800

An online auction site called Swoopo, once called TeleBid, has hit upon an ingenious way to make money. They are an auction site not entirely unlike Ebay - but using a different auction scheme. Where EBay uses a slightly modified Vickrey auction system, Swoopo uses an auction system based on the "Dollar Auction" game - with interesting results. Their system is an open auction with a very tight time limit, where each bid made increases the price by seven pence, costs the bidder fifty pence to make and increases the time limit by a couple of seconds. This might seem benign at first, until you do the maths: For example, a camera worth £679.99 was recently sold for £189.49 to someone who had made 81 bids. This particular bidder paid a mere £229.99 for the camera. But to drive up the camera's price to £189.49, some 2706 bids had to be made, at a total cost of £1353. Hence, Swoopo ended up receiving £1542.49 for a camera valued at less than half that. It's a good deal for the winner - but an even better one for the company. An even stranger kind of auction takes place on the site - a "100% off" auction, where the final price does not have to be paid. Whoever makes the final bid before the timer runs out gets the object of the auction for no additional cost beyond the bidding fees. The object of the auction is five hundred pounds. So the deal is this: keep on giving money to Swoopo in 50p increments, hoping to be the one to get the money at the end. Whenever that is. At the time of writing, there was a £500 auction that has climbed to £738.08. If it ended at that point, one of the parties would walk away with £500 in exchange for however much it cost them to bid. And the company would end up with £5272 in fees in exchange for that £500. Is this auctioning or entertainment? A clever application of game theory? Gambling? A scam? It's probably not illegal, as far as anyone can tell. The decision on its morality is left up to the reader... Previously on Everything2 and TechCrunch, including a comment from (apparently) the CEO of Swoopo.

MetaFilter posts tagged with swoopo

Cheap Talk - Econ and game theory from Jeff Ely and Sandeep Baliga

The Dollar Auction and Swoopo