Bidding process in online auctions and winning strategy: Rate equation approach

Online auctions have expanded rapidly over the last decade and have become a fascinating new type of business or commercial transaction in this digital era. Here we introduce a master equation for the bidding process that takes place in online auctions. We find that the number of distinct bidders who bid k times up to the tth bidding progresses, called the k-frequent bidder, seems to scale as n_k(t)∼tk^−2.4. The successfully transmitted bidding rate by the k-frequent bidder is likely to scale as q_k(t)∼k^−1.4, independent of t for large t. This theoretical prediction is close to empirical data. These results imply that bidding at the last moment is a rational and effective strategy to win in an eBay auction.