This is the second part of the series on Understanding Bid Increments and Proxy Bidding.

Understanding Proxy Bidding

Proxy bidding is where eBay’s server automatically places counter-bids for you (up to the maximum price you predetermined) when a competing bidder places a bid on an auction you’re attempting to win.  The proxy system will place bids on your behalf using the lowest possible bid increment required to out-bid your competitors.

Proxy Bidding Example

I’ve got my eye on a new John Deere ball cap and find one just listed on eBay with a starting price of $3.00.  I decide to bid and resolve that the most I am willing to pay is $7.00.  I enter a bid and set my maximum price as $7.00.

Two days later, my wife decides to finally break down and get me the John Deere cap for my birthday that I’ve been hinting about for a month.  By some ironic coincidence, she decides to buy it on eBay and happens to bid on the same listing I’ve bid on (suspend disbelief for a moment and assume that she does not recognize my eBay user ID).  Not placing the same value on a John Deer ball cap as I do, she enters a maximum bid of only $6.00.  eBay’s proxy bidding system will now automatically start entering competing bids for each us until one of us is outbid.

The bids are increased by the bid increments detailed in the previous post’s chart.  So, the first proxy bid placed for my wife is for $3.25 (because the bid increment for auctions with a current price between $1.00 – $4.99 is $0.25).

The next proxy bid is placed on my behalf in the amount of $3.50 ($0.25 over my wife’s proxy bid).

The proxy bidder automatically places another three $0.25 bids for each bidder until the auction price reaches $5.00.  At this point, the bid increment increases to $0.50.  The proxy bidder increases both my wife’s and my bids accordingly and the automatic bidding continues until my wife is finally outbid.

This round of bidding ends with me still the high bidder and the current bid standing at $6.50 – my wife’s maximum and final bid ($6.00) plus the minimum  increment required to outbid her ($0.50).  Notice that if the auction ended at this point, I would not have to pay my maximum bid ($7.00).  I would only pay the minimum required to win the auction.

The proxy bidding process happens almost instantly.  In the scenario above, my wife would have learned that she was outbid immediately after clicking the place my bid button.

Your Maximum Bid is Secret

The maximum price a bidder enters is kept secret from other bidders and the seller.  In the example above, my wife would have no idea what my my maximum bid was (other than the fact that it exceeded hers).  She would not know that she would only need to bid another $0.51 to surpass me as the high bidder.

Ties are awarded to the buyer who bid the earliest – if my wife bid only $0.50 more, for a total of $7.00, I would still be the high bidder because I placed my max bid of $7.00 before she did.

Part III of this series will discuss how proxy bidding can protect you from auction snipers.