Pricing the unknown: An Analysis of Expected Value of Young Horses and Price-Determining Factors

Abstract

From a seller’s point of view in a market, it is crucial to plan the pricing strategies based on perceptions of buyer preferences and their willingness to purchase to ensure market success in selling and pricing. Applying this to the equine industry, this paper studies the factors determining the price of young horses (age ≤ 2 years) in digital auction platforms. Using data from Professional Horse Services, LLC (2012–2023), a Heckman’s two-step approach was employed, which involves a probit model as the first step and a hedonic price model as the second, aiming to correct for sample selection bias in the data. The first step evaluates the probability of sale of a young horse, and the results indicate that variables of breed category, veterinary information, and auction season significantly impact the sale probability of a horse. The second step evaluates the determinants of the final bid price of a horse based on observed sales, where the model’s key findings show that the final bid price is impacted by season of the auction, breed type, health and veterinary information, and discipline specialization. A comprehensive understanding of the findings reveals that various attributes influence the sale and final bid price of a young horse, providing buyers and sellers with better information to inform their bidding decisions and pricing strategies on digital auction platforms, respectively