Understanding the eBay Auction Automatic Bidding System

How Does eBay Bidding Work?

eBay online auction bidding
Getty Images/Matt Cardy

If you're new to eBay, you may have noticed that there are two basic kinds of listings—auction-format listings and fixed-price listings. Fixed price listings behave just as you expect online shopping to behave; you click a button to make a purchase, then pay for it.

Auction format listings, however, can be much more mysterious for new eBay shoppers, and the item pricing and bidding system for auction listings can make what should be an easy task (making a purchase) seem unnecessarily complex.

Here is what you need to know about the items you find in eBay searches and how to "bid on" them.

Two Kinds of Items: Fixed Price and Auction

In general, items on eBay are being sold in two basic ways:

Fixed price items are easy to identify because they have a "Buy It Now" button with a price listed next to it. You can buy this kind of item simply by clicking the "Buy It Now" button. You will pay the price listed next to the button.

Auction items have a "Place Bid" button next to a box for entering bids and show a "current bid" price. Auction items are open to bids for a predetermined amount of time. When time is up, the item is declared "sold" to the highest bidder.

A few items have both kinds of buttons and show two prices at once. Items like this are for sale both ways. If nobody uses the "Buy It Now" button, the item goes to the highest bidder when time is up.

How to Bid on eBay (What You MUST Know)

If an item you're interested in has a "Place Bid" button (meaning that it's an auction item), you'll have to bid on and "win" it in order to buy it.

To do so, enter a dollar value into the box (your bid) and click "Place Bid."

Before you decide to bid, however, but there are some things you should know:

eBay auctions accept bids only for a specific amount of time. In a traditional non-eBay auction, bidders frantically place competing bids. When bidding slows to nothing, the auctioneer pounds the gavel and the item is sold.

On eBay, auctions are open to bids for exactly 1, 3, 5, 7, or 10 days. When time is up, the high bidder wins, even if people are still frantically bidding.

You must place a bid that is higher than the current bid. Below the bidding box, you'll see the text "Enter (some amount) or more." This amount is the current minimum bid; you must enter at least this amount if you want to bid.

You may pay less than your bid if you win. When you win an auction you always actually pay only a small amount more than the next highest bid--even if your bid was thousands of dollars more.

If your bid wins, you must buy. Your bid on an auction is a legally binding contract. If, when time runs out, your bid is the highest, you have purchased the item and must pay the seller for it.

Use 1-Click Bid to place small bids. In the last 15 minutes of an auction you've bid on in the past, you can instantly bid one increment higher than the current bid by clicking the "1-Click Bid" button.

Other bidders may be using the automatic bidding system. Because many shoppers use eBay's automatic bidding system, eBay auctions may not behave in ways that make sense to you.

Automatic Bidding (What You SHOULD Know)

eBay's automatic bidding system is provided to the current high bidder in any auction listing. Through the system, eBay will bid automatically on behalf of the high bidder against underbidders. This allows bidders to bid very high while at the same time ensuring that they never pay more than the absolute minimum needed to beat the next highest bidder. Here's how it works:

  • To use automatic bidding, bid the absolute maximum that you're willing to pay instead of the current minimum.
  • If the maximum you entered is higher than the bids entered by anyone else so far, you become the new high bidder. eBay "bids up" the auction on your behalf until the current bid is a small increment above your closest competitor's highest bid, but no higher.
  • If your maximum bid is not the highest bid entered so far, eBay registers your bid, but continues to bid on behalf of the high bidder, automatically outbidding you by one bid increment and no higher. They remain the high bidder.
  • eBay continues to automatically bid on behalf of whomever is the highest bidder at the moment, up to and including their maximum, until auction time runs out.

A Sample eBay Bidding Scenario

The following scenario helps to illustrate how the eBay bidding system works:

Sam, the seller, lists a clock radio for sale on eBay via auction, with a minimum starting bid of $1.00 and a duration of 5 days.

Day 1
Current (public) bid: n/a; Minimum next bid: $1.00; Max: n/a.

The first bid is from Jack, who bids $10.00 even though the minimum is $1.00. Since there are no other bidders, eBay bids the minimum of $1.00 on Jack's behalf and changes the minimum for any new bids to $1.25—the current bid of $1.00 plus the increment of $0.25.

Day 2
Current bid: $1.00; Minimum next bid: $1.25; Max: Jack, up to $10.00.

The second bid is from Jill, who bids $1.25. Because Jack's $10.00 maximum was higher, eBay immediately bids $1.50 on Jack's behalf ($1.25 plus one increment) and resets the minimum to $1.75 ($1.50 plus one increment).

Day 3
Current bid: $1.50; Minimum next bid: $1.75; Max: Jack, up to $10.00.

Jill tries again, bidding $1.75. Jack's maximum is still higher, so eBay immediately bids on his behalf again and adjusts the minimum accordingly.

Day 4
Current bid: $2.00; Minimum next bid: $2.25; Max: Jack, up to $10.00.

Frustrated, Jill tries a fourth time, bidding $16.50. This is higher than Jack's maximum, so eBay sets the current bid to $10.50 (Jack's maximum plus one increment). Jill is now the high bidder and eBay is bidding automatically on her behalf.

Day 5
Current bid: $10.50; Minimum next bid: $11.00; Max: Jill, up to $16.50.

During the final moments of the auction, a new bidder named Ted bids the minimum of $11.00. eBay automatically bids on Jill's behalf, outbidding Tim by one increment at $11.50.

Winning bid: $11.50; Winner: Jill.
The auction ends after exactly five days. Jill is the highest bidder and wins, not for $16.50 (her maximum bid), but for $11.50 (one increment higher than her nearest competitor's bid). That's how much she sends Sam via PayPal, and she happily receives her clock radio several days later.

In the example above, two bidders (Jill on two occasions and Ted on one occasion) experienced the frustration of being instantly outbid by the high bidder because eBay was automatically bidding on their behalf.

On the other hand, Jill is able to win the auction for $11.50 rather than her high bid of $16.50 thanks to the very same automatic bidding system.

Automatic Bidding Caveats

Automatic bidding sounds simple and great. If there's an item you want to be sure to win, you can place a single very high bid to be sure that you win without having to monitor the auction for days, yet at the same time you can rest easy knowing that you'll never pay more than you absolutely had to in order to win the auction.

The complications and confusion arise for three reasons:

  • Automatic bidding is for everybody. eBay does automatic bidding not just for if you are the high bidder, but for all of your competitors as well.
  • The current maximum is secret. None of the bidders actually know the maximum entered by the current high bidder. There is thus no way to know "how much is enough" to "just barely" outbid them.
  • Most people don't realize this. Many bidders don't realize that eBay has (and always has had) this feature. eBay doesn't advertise it much, though it is described in eBay's help pages.

Avoid Under-Bidding by "Sniping"

New eBay bidders tend to bid the minimum (rather than their personal maximum) and find themselves immediately outbid over and over again by just a few dollars or even just a few cents, bewildered. Of course, there's one other reason for the confusion felt by many new bidders: Auction sniping. 

An increasing percentage of eBay bidders use third-party tools sites to schedule their maximum bids to be placed automatically just moments before auctions end. This additional level of "automatic bidding" is called sniping.

Sniping tools aren't a part of eBay itself; they're third-party tools for placing carefully-timed automatic bids. Often, heavily "sniped" auctions see meteoric rises in the last few moments of an auction, something that can seem nefarious and unfair to new eBay users.

Sniping isn't against eBay policy, but there are both benefits and disadvantages for the bidders that use it. Because regular snipers swear by it and those that don't like it tend to feel the opposite, it can be a good idea to read about sniping and see comments from snipers, along with a discussion of their concerns.

At the end of the day, whether or not sniping makes sense as a bidding strategy for you depends on a combination of your own buying preferences, the kinds of items that you're most likely to bid on, and the amount of time that you have to dedicate to eBay bidding in comparison to the funds that you have available for your purchases.

eBay Bidding is a Mishmash of Opportunity

The combination of automatic bidding, auction sniping, secret maximums, and a large portion of users that either don't know about automatic bidding or prefer to use "traditional" bidding styles like one-click bidding means that eBay bidding is a mishmash of different strategies, expectations, and possibilities.

It can take a certain amount of experience on eBay to really get a feel for how it all fits together, but in the meantime, beginners shouldn't hesitate to jump in and have fun. Who knows? Even if you lose a few auctions early on, you might also stumble onto one or a couple of lucky deals!

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