Bidding on eBay, in theory
eBay uses a system called "proxy bidding". The idea is that it works just like having a proxy bidder at a real-life auction. You tell your proxy bidder what your maximum bid is for the item in question. Your proxy (or, in this case, a computer working for eBay) keeps your maximum bid secret from other bidders, but bids against them in the auction, until either you win the auction, or someone outbids your maximum.
Because of this system, auction terminology regarding eBay is slightly different to "real" auctions. Any time you "place a bid" on eBay, what you are really doing is setting a maximum bid, via the proxy. In a real auction, if I bid £1000, then the price of the item goes up to £1000. In an eBay auction, if I "bid" £1000, but the second-highest bid is only £9, then the price of the item only goes up to £10.
For example: A classic Cliff Richard LP is up for auction. I want it, but so do Emma and Bob. The bidding starts at £1.
TenMinJoe bids £10:
Current price: £1: TenMinJoe winning the auction.
So, at this point, I am winning - I have set my maximum at £10, and the proxy bidder has bid £1 on my behalf.
Emma bids £5:
Current price: £6: TenMinJoe winning the auction.
Emma sets her maximum bid at £5; eBay's computers compare it to my maximum bid, and mine is higher, so the effect is that my proxy bids £6, to out-bid Emma's maximum.
Bob bids £15:
Current price: £11: Bob winning the auction.
Here comes a new challenger! Bob is prepared to pay up to £15 for the LP. The current price rises to £11, above my maximum of £10, and Bob is now winning the auction.
Auction ends:
Current price: £11: Bob wins the auction.
With no further bids, Bob wins the auction. Even though he was prepared to pay up to £15, he only pays £11, because that was all it took to beat the second-highest bid.
So, it seems simple, right? Everyone tells eBay their maximum bid, and the system calculates who wins. Easy.
Bidding on eBay, in reality
The thing is, it's not as simple as that in real life. eBay want to maximise the closing price of an auction, both to encourage sellers, and to increase their own cut. So, they allow you to bid multiple times on the same auction.
In theory, you would never need to, because you told the proxy the maximum you were prepared to pay, the first time you bid, right? The reality is that many, many people don't. Either people don't understand how the proxy bidding works, or they aren't really sure how much they want the item until they find out they can't have it.
Here's a more realistic example. The rare My Little Pony unicorn set goes up for auction:
TenMinJoe bids £10:
Current price: £1: TenMinJoe winning the auction.
It's for my sister, alright? As before, I have set my maximum at £10, and the proxy bidder has bid £1 on my behalf.
Emma bids £5:
Current price: £6: TenMinJoe winning the auction.
Emma sets her maximum bid at £5; eBay's computers compare it to my maximum bid, and mine is higher, so the effect is that my proxy bids £6, to out-bid Emma's maximum.
"Golly!" thinks Emma to herself. "I really thought £5 would be enough, but I'm still not winning the auction. I guess I could afford to spend £7."
Emma bids £7:
Current price: £8: TenMinJoe winning the auction.
"Goddammit!" cries Emma. "I never had the unicorn set when I was a kid and I'm damned well going to own it now! Stupid Nancy Fairbrass had one and she was a BITCH!"
Emma bids £8:
Current price: £9: TenMinJoe winning the auction.
Emma bids £9:
Current price: £10: TenMinJoe winning the auction.
Emma bids £10:
Current price: £10: TenMinJoe winning the auction.
At this point, my maximum bid takes precedence over Emma's, because it was placed first, but the fact that the price hasn't gone up is a dead giveaway to Emma that she's hit my maximum, and so:
Emma bids £11:
Current price: £11: Emma winning the auction.
"Hah!" says Emma, and goes to bed happy.
A day later the auction is still running, and Bob comes across it. (Bob doesn't have a sister, he just loves unicorns.)
Bob bids £15:
Current price: £12: Bob winning the auction.
Emma gets an email from eBay. "Don't let this item get away! You were WINNING, but now you are LOSING, you don't want to be a LOSER do you? Bid MORE!"
Emma bids £20:
Current price: £16: Emma winning the auction.
Auction ends:
Current price: £16: Emma wins the auction.
Sniping
On eBay, to "snipe" is to place a bid at the very last second, before the auction closes. This increases your chances of winning the auction, and you are likely to pay less.
When I advocate auction sniping to people, they often say "What's the point? I just bid my maximum bid right away, and the proxy bidding system takes care of it. If someone else eventually wins the auction, they were prepared to pay more, so I wouldn't have won anyway."
The thing is, these people, bless them, are living in a fantasy land where everyone is just as rational as they are. In fact, eBay is full of people like Emma. Almost any auction you care to look at will show at least one bidder who bid multiple times.
It makes sense to optimise your eBay strategy to work against the people you will really be bidding against, not against imaginary perfectly logical beings.
How sniping works
Let's replay the My Little Pony auction, but this time, both Bob and I save our bids until the closing seconds of the auction.
Emma bids £5:
Current price: £1: Emma winning the auction.
"Great!" thinks Emma, and goes to bed.
A day later, in the closing seconds of the auction:
TenMinJoe bids £10:
Current price: £6: TenMinJoe winning the auction.
Bob bids £15:
Current price: £11: Bob winning the auction.
Auction ends:
Current price: £11: Bob wins the auction.
This time, not only did Bob win the auction instead of Emma, the final price was also lower.
Sniping works by not giving Emma a chance to reconsider her bid, and to realise that owning the unicorn set at last will mean she finally gets one over on Nancy Fairbrass. Emma's repeated bids are all based on feedback she gets, feedback that tells her that she's not going to win the auction unless she bids more.
It's true that if she had simply set her maximum of £20 right at the start, she would have won the auction, but she didn't, and many, many other people are just the same.
Disadvantages of sniping
As mentioned earlier, in the case of two identical maximum bids, the earlier bid wins. In the unlikely event that your last-second bid is exactly the same as someone who bid days ago, they'll win. This has never happened to me.
If for some reason you (or whatever tool you might be using to snipe - see below) cannot contact the eBay website when it's time to snipe, obviously you cannot win the auction. This hasn't happened to me either, yet.
Be aware that it's much easier for a seller to cancel an auction if there are no bids. If you intend to snipe an auction which currently has no bids, it may be wise to place a small bid at once, just to ensure the item remains available for you to snipe later.1
How to snipe
There are three ways.
Manual sniping
You have to set an alarm, or something, to remind yourself to be in front of a computer when the auction is closing, and then you simply bid yourself with 30 seconds or so to go. Exciting, but not always terribly convenient. If this isn't practical, bear in mind that simply bidding as late as you can is still an improvement over bidding at once. If you bid with, say, 12 hours to go, there's a decent chance that Emma won't check her e-mail during that time and find out that she's been outbid. It's still much better than bidding with 5 days left on the auction.
Sniping website
This is the method I use. However, I admit that it's, in principle, a terrible security risk, because you have to give your eBay password out to some third-party website in order that they can bid on your behalf. I'm prepared to take that risk (because my Dad had been using the same site for a year before I started using it), but you should seriously consider the risk of having your login stolen. The site I use is "AuctionStealer" (ominous name, now I look at it), but, again, think hard about whether it's a good idea.
AuctionStealer, and, I imagine, other such websites, offer you two or three free "snipes" per week, but then charge you a subscription fee if you want to use it more than that. (Just how much junk are you buying on eBay, anyway?).
Sniping software
So that you don't have to give your password to a website, you can use software which runs on your own computer. Of course, your computer has to be online when the auction ends, and you still have to give your password to the software. Can you trust the software? You really have to make that call yourself.
The morality of sniping
"Sniping seems kind of nasty - shouldn't I let everyone else have a chance to raise their bid?"
The hell with that, if they're not smart enough to understand proxy bidding they don't DESERVE the My Little Pony unicorn set.
1If you make a placeholder bid like this, remember that you did so, otherwise you may go off and bid on a similar item and end up with, say, two digital TV tuner cards, when you only needed one. Just, you know, for example.