Candle Auction: history and today.

A candle auction is a variation of the English auction such that, instead of closing after seeing no more higher bids, the candle auction only ends after the duration of the auction expires.

The term candle auction comes from in the old days, that an auctioneer would light a candle, then accept any bids until the candle runs out. This model is no longer used in auction houses because it is easy to exploit. An experienced buyer can shout out a bid right before the candle burns out, and win the auction even if he does not value the item most highly, because his strategy does not allow other bidders to react.

However, we still see a variation of this model in online auction websites like ebay, such that each auction has an expiration timer, which would be the equivalent of a candle in the old days. To minimize these last minute exploits, buyers can enter their highest bid, but their highest bid will not be revealed until someone bids higher. This way, even if someone shouts out a bid that is higher than the current bid, if the last minute bid does not exceed the highest value amongst other buyers, the highest value buyer still wins.

However, people often don't put in their real highest bids in eBay, instead, they prefer to see how it goes and how they feel at the time, or they want to try to snipe. If more time was added to the auction when a bid was placed or people always placed their highest bid, then sniping would not be effective. Since it is seen to be fairly common and often effective, this practice is still done.

The way eBay resolves sniping is through proxy bidding, which we discussed in class. Each bidder places a hidden maximum bid that is visible to the system but not the other bidders, termed a proxy bid. The proxy bid indicates the amount to which a bidder is willing to extend their original bid. Through proxy bidding, sniping is averted since the sniper is unaware of the proxy bid.

Just to follow up, sniping could still be effective in proxy bidding auctions, specifically the one eBay maintains. eBay doesn’t let other bidders know your proxy bid but it will indicate when your proxy bid has been exceeded by another bidder. So a committed sniper could increment their bid until he has just outbid you toward the closing minutes of an auction.