Proxy Bidding Explained

The proxy bidding system is a method whereby a buyer enters in the absolute most that she is willing to pay for an item. At that moment, KEDT takes over. If I am the highest bidder, then I take the lead, but only enough to beat the former leader by one increment, or exactly the amount of the opening bid, if I am the first bidder. If not, then the current leader uses his Max Bid  to Proxy bid enough to maintain the lead.

A key factor in proxy bidding is the amount you have bid, called your Max Bid, keeps itself as much of a secret as it can. At any given time, it shows only enough of itself to take the lead. Only if somebody outbids you will your Max Bid be revealed, then the other Max Bid becomes a secret. If you are the current leader, you can still bid, and KEDT will simply increase your Proxy, and won't alter the amount of the current bid.

The only exception is if your old Proxy Bid was greater than the second-highest bidder by less than one increment. In this case, your current bid will rise until it is greater than the second highest bidder by one increment.

Once the auction is over, the highest bidder wins, and owes an amount equal to the second highest bidder plus one increment. The amount of the increment is defined by KEDT . Any amount of the bid above and beyond the winning total is kept hidden. Nobody will ever know the amount of your Max Bid. 

Technically, any bid is a proxy bid, but the general convention is to call a bid a proxy only if it's the absolute most you are willing to pay for an item. Otherwise, we call it a lowball bid.

Note that if you are the only bidder, you will win and owe the amount of the opening bid. Even if you have bid multiple times, you still count as the only bidder. If the item opened for $1.00 and you bid $1000.00, and nobody else bid, you will win for $1.00.

Benefits of Proxy Bidding  

The main benefit of Proxy Bidding is that you do not have to sit at your television for the duration of the auction, continuously outbidding your competition. KEDT does that for you via the proxy system.

Another benefit is that Proxy Bidding helps prevent Buyer's Remorse. If you only bid once on an item, and carefully decide how much you want to bid, then are you are less likely to end up spending more than you are willing to, or can afford. This doesn't always work, though. If you have to go somewhere, and decide to to enter a proxy bid of $500.00 with 1 hour left, and fail to take the lead, you might decide that you were really willing to bid more. But in general if you steel yourself to Proxy Bid only once, then such problems are minimized.

Proxy bidding puts the minds of non-winners at ease, sort of. If you Proxy Bid correctly, and still lose, you will know that the person who won fairly and squarely outbid you and was willing to pay more than you were. It's still disappointing, naturally. I've lost before, and I can't honestly say that I was overjoyed, but it's better than nothing. It would have been worse to know that I would have bid more than I did, perhaps beating the winner if I had bid correctly in the first place.

Finally, the proxy system is self-running. Neither the buyer nor the seller need worry about the details. Buyers enter their bids, the seller checks the current amount every once in a while, then the highest bidder wins. It's all on automatic, folks, so sit back and enjoy the ride. :-)

An Example     

There's an Acme Widget up for auction. The opening bid is $100. You see it, and you're not sure that you really want it, so you bid $20. You take the lead with $20. Since you took the lead away from nobody, the current amount is the same as the opening bid, since the first bidder does not bid against the opening bid.

A little while later I see the item, and decide that I want it. I enter a Proxy Bid of $40.00. At that moment, because I am the new high bidder and because I took the lead from someone, I need to beat your max bid. I take the lead for $30. That's $20 to match you plus $10 for the minimum increment to pass you. The $10 difference between my current bid and my Max Bid is my remaining proxy, or my safety margin. KEDT won't reveal that or use it until it becomes necessary.

A little later, I decide that $40.00 may not be enough to hold the item, so I bid again for $70.00. I am basically bidding against myself. KEDT is smart enough to recognize this, so I am remaining the high bidder and the current bid is still $30. I don't have to spend any of my proxy to take the lead. I now have a $40 safety margin.

You see this, and decide that you really do want the item, and you're willing to bid more. You bid $40.00. That's not enough to overtake me, so I remain the high bidder, but I need to spend some of my Proxy to stay there. KEDT moves my bid current bid up to $50; $40 to match you, the second-highest bidder, plus the increment of $10.

Still determined, you bid $55. I remain the leader at $65. In a fit of rage, you bid $75. You now take the lead at $75; $65 to match me plus the $10 increment to pass me.

Still later, a world-famous widget collector comes along, and recognizes this is a very rare model. She bids a whopping $500 for it (WOW). She takes the lead at $85, which is equal to my max of $75 plus the $10 increment. There are no other bids, and the collector ultimately wins for $85.00. Her $415 safety margin vanishes into the Great Void, never to be seen by anybody.

One side effect of the proxy bidding system is that it may often appear that you were outbid by exactly one increment, when in fact you may not have been. The original Max Bid is never known by anybody except you, unless you win by less than one increment. In our example, the winner would be shown to have bid $85, even though she bid much more. The hidden proxy remains hidden even after the auction ends.

Being outbid by less than one increment         

Once in a while, somebody will outbid you by less than one increment. This happens if your proxy is higher that the required minimum bid. Each new bidder is only required to beat the current bid by one increment or more. They are not required to beat your Proxy Bid by one increment, since they do not know what it is.

For example, an item opens for $1. I bid $25, and take the lead with $1. Somebody else bids $10. I retain the lead at $11. You come along and want the item. You see that I am the leader, the current bid is $11 and the required minimum bid is $12, using normal increment rules. You can bid any amount equal to or greater than $12. You decide to bid $26. This is allowed since it is equal to or greater than the required minimum bid. KEDT does a battle behind the scenes and you take the lead since you have the highest bid.

At that point, you are the leader with a current bid of $26. In this case, the current bid is equal to your proxy bid, since the gap between you and me is one increment or less. The new required minimum bid would now be $27.

Note that this can only happen when the lead bidder's proxy is greater than or equal to the required minimum bid. The reverse could also happen, with you underbidding me by a penny and having me retain the lead by less than one increment. That second case could not happen if the lead bidder's proxy is equal to the required minimum bid. The logic here can get rather tangled, but it does make sense.

Technical Notes  

If the auction does not have any bidders, then the current bid is the minimum bid. In this case, you only need to bid the minimum, and you will be the leader. Once there is at least one bid, then you must bid an amount equal to at least the minimum bid plus one increment. You may never bid under the listed amount. You may bid more, of course, and I recommend that you do, as long as you are willing and able to pay any amount that you bid.

If you are the current leader, you can continue bidding to raise your proxy. When this happens, KEDT is smart enough to recognize that you are not bidding against yourself. When you bid as the high bidder, the current bid will not change, barring the exception mentioned above. Only your Max Bid will rise. For most intents and purposes, KEDT treats these as just one bid, although the total amount of bids will record that you are raising your Proxy Bid.