Market Making in a Thin Auction Market: Pricing and Bidding on Graded Trading Cards

Abstract

Graded trading cards are thinly traded: each card at each grade is its own small market, and much of the supply sells through auctions. We present a system that prices these cards and bids on them. It has three parts. The first is a fair value estimate built from recent sales of the same card and grade, adjusted for how often the card trades, how far its sales tend to fall below the typical price, its recent trend, and the cost of reselling it. The second are individual bidding rules set per category. The third is a testing method that keeps what was known when each bid was placed apart from what was learned afterward. At the time of writing, after four months of running, the system has priced more than 250,000 graded cards and placed more than 100 million dollars of bid exposure. In its first month of live operation it bought cards at roughly 48% of their point-in-time market value. Following these auctions for 30 days after they closed, we were able to measure the winner's curse directly as the auctions a bidder wins tend to be the ones where it was adversely selected. Finally, we discuss scalability and current operations.