I study the role of minimum bid increments (MBI) in internet auctions
using natural field experiment data from a Finnish online auction site Huuto.net.
Internet auctions are typically viewed as second‐price, implying
truthful bidding. However, due to the presence of the MBI, equilibrium
bidding behavior involves bid shading. I sell otherwise identical gift
cards while varying the MBI and test between truthful bidding and bid
shading. Truthful bidding is rejected. Consistently with equilibrium
behavior, bid shading increases as the MBI increases. This implies that
real‐world bidders are capable of reacting rationally even to seemingly
small variations in their strategic environment.