EBay uses an automatic bidding system. Every bidder enters their maximum bid, and the system automatically places incremental bids on each bidder's behalf.
For example, bidding starts at $1. Alice is the first bidder, and she places a maximum bid of $5. The system displays a current bid of $1.
Then Bob comes along and places a maximum bid of $4. The system automatically places incremental bids on Alice's and Bob's behalf (as though they're sitting in an auction house shouting "$1.25!" "$1.50!" at each other) until it hits Bob's maximum of $4. Now it shows Alice in the lead with a bid of $4.25.
If there are no other bidders, Alice will pay $4.25 for the item.
This means that the winning bid is one increment higher than the second-highest bid, regardless of the winning bidder's highest bid. In other words, if Alice had set a maximum bid of $1,000 and Bob had set a maximum bid of $4, Alice would still pay $4.25 for the item.
I wonder if this kind of system could help cool the housing market?
During the pandemic, housing prices across the country skyrocketed. Conventional wisdom is that this is because city residents with city real estate money were buying exurban real estate and driving up the prices.
Why, I wondered, were they paying city prices for exurban properties? Even if you have city real estate money, why wouldn't you pay the exurban price for the exurban property?
The answer, I was told, is bidding wars.
So I wonder if the problem could be fixed by building a better bidding war?
My idea: inspired by eBay's system, every potential buyer enters their maximum bid, and an automatic system bids them against each other. The end result is that the highest bid is a dollar higher than the second-highest bid.
That way, if the prices are being driven up by outlier buyers, they won't be driven up to higher than the going rate.
The seller wouldn't suffer particularly from this. Any sensible seller would budget and plan for their home going at roughly the current going rate, and a dollar higher than the second-highest bid would fall within the going rate. Like on eBay, they could still have the option to set a reserve price, so if no one bids a high enough amount, they don't sell at all.
Perhaps this kind of system could also be adapted to let buyers bid on multiple homes and then retract their bid once they've bought a home, so you wouldn't have to wait for one bidding war to end before expressing interest in another possibility. One person withdraws, the next highest bid automatically wins, no big deal.
But would this actually help cool the housing market? I'm not sure! If there are multiple above-market bidders, it wouldn't change a thing. But if there's just one above-market bidder, this system would prevent them from driving up the price.
I guess the flip side to that question is: would this kind of bidding system cause any harm? Or would the worst case scenario result in the same housing prices as the current system, but perhaps with less stress, and perhaps sometimes letting buyers get a home without fully leveraging?
I don't know the answer to that question. It would be interesting if someone could study this.
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