Proxy bidding, sometimes called absentee or automatic bidding, is a method for bidding in an in-person or online auction. The way it works is the person who wants to bid on an item decides a maximum amount that he is willing to pay for it in advance, and tells this amount to the auction holder. As other bids are made, the auction holder automatically increases the person's bid by pre-specified increments until his maximum amount is reached. If the bidder is monitoring the auction, at this point he or she can give up or choose to increase his bid. The reason people do this is so that they don't have to continually monitor an auction to win an item, and so they can more easily bid on several items at once.
How Proxy Bidding Works
Though many people only associate proxy bidding with online auction sites, it happens in physical auctions as well. In a physical auction, the bidder who wants to bid by proxy usually calls or e-mails his maximum bid to the house before the auction begins; in an online auction, he gives this information to the auction site at any point once the auction is open. In both cases, the bidding process is automatic, and the proxy bidder doesn't have to do anything further unless his maximum amount is reached. If that happens, the auction holder calls or e-mails the person bidding by proxy, who can decide whether he wants to keep on bidding beyond his initially identified maximum price. If the maximum amount is not reached but other bidders give up, then the proxy bidder only pays the last bid amount, not his maximum price.
Proxy bidding is used in second-price auctions, which are those in which the winning bid is one bidding increment higher than the second place bidder. This means that the highest bid — which is the highest maximum placed by any proxy bidder — is sealed, but the second-highest is always public because the current high bid is one increment higher.
For example, two people are bidding on an item. Bidder A sets a maximum proxy bid of $100 US Dollars (USD). If bids increase in units of $10 USD and A is the only bidder, he'll have the high bid with $10 USD. If bidder B joins the auction and sets a maximum proxy bid of $150 USD, the high bid is now $110 USD — the maximum of the second-highest bid ($100 USD) plus the unit increase ($10 USD). The actual maximum that B is willing to pay — $150 USD — is not known unless someone else bids more and it becomes the second-highest bid.
Pros and Cons
This strategy can be very convenient, since it allows people to bid on several auctions at once without having to actually follow any of them, but people can get mixed results. People who bid on multiple items at the same time may choose lower maximums just in case they win several auctions so they don't suddenly end up with a huge bill. Having a lower maximum makes the bids less competitive though, so it's not always the best strategy. On the other hand, people who proxy bid don't have to constantly watch the auction to one-up the other bidders. Proxy bidding may also help make it less tempting to get carried away with bidding, since the bidder sets a pre-determined limit.
Tips for Getting the Best Results
Auctioneers say that the way to get the best results with proxy bidding is to first research the item up for bid to assess its market value. After that, the proxy bidder should set the maximum amount at a price that really is the maximum he would pay for the item, and then leave the auction alone. Putting an artificially low maximum and then planning to raise it later is generally cautioned against since someone bidding by proxy may not have time to raise his or her bid before the auction is over. It's also important to remember that some auctions come with minimum bids and fees, so bidders who want to bid by proxy should take this into consideration when deciding their true maximum bid.
Maximum Bid Fishing and Bid Sniping
In online auctions, bidding by proxy opens the bidding process to maximum bid fishing. This is when a bidder increases his or her bid by small amounts until it is the top bid in order to find out what the highest maximum is. By doing this, the "fisher" can find out what people are willing to pay and, in some cases, artificially drive up the bid.
To combat this, some people use bid sniping for online auctions. This is when bids are made only at the very end of the auction rather than being placed early. By setting the bids to only be made as the time limit on the auction is about to end, it allows the sniper to know what the second-highest bid maximum is, and does not give other bidders a chance to "fish" to see how much the sniper is willing to pay. Some people object to bid sniping because other proxy bidders, who set their maximums earlier in the auction, usually do not have time to raise their bids if the sniper's maximum is higher. If an early proxy bidder has set his or her maximum bid to be higher than the sniper, however, he or she will still win the auction.