An Experimental Study of Information Revelation Policies in Sequential Auctions

Theoretical models of information asymmetry have identied a tradeoff between the desire to learn and the desire to prevent an opponent from learning private information. This paper reports a laboratory experiment that investigates if actual bidders account for this tradeoff, using a sequential procurement auction with private cost information and varying information revelation policies. Specically, the Complete Information Policy, where all submitted bids are revealed between auctions, is compared against the Incomplete Information Policy, where only the winning bid is revealed. The experimental results are largely consistent with the theoretical predictions. For example, bidders pool with other types to prevent an opponent from learning signicantly more often under a Complete Information Policy. Also as predicted, the procurer pays less when employing an Incomplete Information Policy only when the market is highly competitive. Bids are usually more aggressive than the risk neutral quantitative prediction, which is usually consistent with risk aversion.Complete and Incomplete Information Revelation Policies, Laboratory Study, Procurement Auction, Multistage Game

Measuring Consumer Acceptance and Willingness-To-Pay for Specialty Tomatoes: Impact of Product, Taste, and Health Features

The increasing public health awareness and the promotion given to healthy eating habits as a measure to prevent obesity and chronic diseases have pushed consumer’s attention towards differentiated products. Many of the differentiated products, such as those with environmental, local, and other health and quality claims, are categorized as credence goods. Credence attributes, such as nutritional characteristics, are unobserved by consumers even after consumption, making the use of information crucial for marketing the benefits of such products. While there have been numerous studies examining the potential impacts of these attributes on consumer demand, few studies combine consumer valuation of credence attributes with sensory analysis of products and information treatments. This study attempts to shed more light on this area by considering both the impact of various attributes on consumer demand and the consistency in consumer valuation under different information treatments. The information treatments refer to tasting, health information, and the location of origin and production system of the products. A non-hypothetical second-price Vickrey auction was conducted in the Bryan-College Station area of Texas in order to collect the data. Several econometric models were developed to estimate consumers’ willingness-to-pay (WTP); however, special attention was paid to the random parameters tobit model as it accounts for unobserved individual heterogeneity as well as bid-censoring. Results show that knowledge of location of origin of tomatoes does have an impact on consumer valuation. The same holds true for the taste attribute (experience) and the health attribute (credence). Each information treatment was applied to several products and some treatments had contradictory results between products which prevented generalizing the effects of that treatment. In addition, estimates indicate there exists unobserved heterogeneity in valuations across individuals. Finally, using a Latent Class Analysis, consumers were segmented based on health-related behaviors, and the differences in the valuation of products and information treatments among those classes were measured using random parameters tobit models. Two latent classes were found and characterized as: “Health Conscious”, and “Health Redeemers”. The findings indicate that the classes differed significantly in terms of their preferences, willingness to pay, socio-economic profile, and health-driven motivations

THE EFFECTIVENESS OF SELLER CREDIBILITY SYSTEMS IN THE ONLINE AUCTION MARKET: MODELING THE SELLER'S POINT OF VIEW

The Internet has turned out to be an appealing place for doing business, with its unprecedented ability to bring together a large number of buyers and sellers, cover a wide scale of market and automate transaction processes, etc. However, this powerful technology of information transformation brings a greater trust problem than corresponding transactions in brick-and-mortar markets, because of the lack of information on product quality and seller honesty. Product information may be selectively disclosed, which increases the chance of fraud and dishonest behaviors. This research focuses on online feedback systems. Analytical models are developed to assess the impact of such feedback systems. Feedback systems, by themselves, are shown to work under certain conditions even in an ideal environment. Influences from incentives for providing feedback, shilling and ID changing are comprehensively discussed. If consumers do value trust, one should expect the more trustworthy sellers to generate higher prices for their products than the less trustworthy sellers. A higher price can offer incentives for sellers to be trustworthy. Following the analytical model, empirical tests of online feedback system are conducted

Endowments, expectations, and the value of food safety certification: experimental evidence from fish markets in Nigeria

We study the impact of endowments and expectations on reference point formation and measure the value of food safety certification in the context of fish trading on real markets in Nigeria. In our field experiment, consumers can trade a known food item for a novel food item that is superior in terms of food safety--or vice versa. Endowments matter for reference point formation, but we also document a reverse endowment effect for a subsample of respondents. The effect of expectations about future ownership is weak and mixed. While expectations seem to affect bidding behavior for subjects "trading up" to obtain the certified food product (a marginally significant effect), it does not affect bids for subjects "trading down" to give up this novel food item. Finally, willingness to pay for safety certified food is large for our respondents-our estimate of the premium is bounded between 37 and 53% of the price of conventional, uncertified food

Price differentiation strategies

Both practitioners and academics agree about the importance of price and its direct influenceon consumers’ purchase decision as well as the company profit. In the reality, we rarely see a single price for a given product. One visit in a store already shows that consumers face many various prices. This strategy of differential prices allows to increase profit but also improves consumers’ situation and increases welfare. A wide range of various price differentiation mechanisms exists on the market which makes price differentiation a very interesting phenomenon. Additionally, market developments constantly allow for new price differentiation applications. In this work, I research a fascinating topic of price differentiation, its various forms and new application possibilities in changing market areas

Evaluating the External Validity of Experimental Auctions: The Case of Hydroponic Lettuce

Agribusinesses have been investigating alternative methods for food and agriculture production as a way to differentiate their product to consumers. Although experimental auctions have increasingly become a popular tool for gathering information about consumers and their valuations of differentiated products, little is known about their valuations for vegetables that are grown using different methods and few studies have simultaneously studied external validity and the influence of outside prices. This study investigates consumers’ valuations of different agricultural production methods and provides a unique method for studying whether consumers’ purchasing behavior reflects their willingness to pay. Additionally, it provides insight into the relationships between consumers’ valuations and their prestige-seeking behavior and health-consciousness. A Vickrey 2nd price auction was conducted and immediately followed by the introduction of an on-site secondary market that used induced value theory and the retail prices of the auction products in surrounding stores in the Bryan-College Station area of Texas. Several econometric models were thereafter estimated using data collected from the experiment; however a random parameters tobit model proved to be most appropriate due to the heterogeneous nature of the data. Results indicate that consumers express deep discounts for red colored lettuce. While tasting the products did not have an impact on valuations, consumers did express significant premiums for organic lettuce after they learned about hydroponic lettuce production and the growing methods of the products were revealed. The same can be said for valuations of mixed lettuce, which was hydroponically grown. Consumers were also categorized using three applications of Latent Class Analysis and responses to scale-style questions about health-consciousness and prestige-seeking buying behavior. The willingness to pay for lettuce was estimated using a random parameters tobit model for each latent class in each application. In addition to advancing the understanding of consumers’ valuations of horticultural production methods, this study contributed to the external validity of experimental auctions. By using an on-site secondary market, it was discovered that consumer surplus and the relative importance of the compensation fee affect an individual’s behavior in the experiment setting

How to run an experimental auction: A review of recent advances

In this paper, we review the recent advances in the literature of experimental auctions and provide practical advice and guidelines for researchers. We focus on issues related to randomization to treatment and causal identification of treatment effects, on design issues such as selection between different elicitation formats, multiple auction groups in a single session, and house money effects. We also discuss sample size issues related to recent trends about pre-registration and pre-analysis plans. We then present the pros and cons of moving auction studies from the lab to the field and review the recent literature on behavioral factors that have been identified as important for auction outcomes

The Effects of Induced Mood on Preference Reversals and Bidding Behavior in Experimental Auctions

This article contributes to the research agenda of accommodating psychological insights in conventional lab experiments. We specifically test whether inducing subjects into different mood states has a significant effect on subjects’ rationality (in the form of preference reversals) and on bidding behavior in homegrown value auctions. We find that mood states can significantly affect the rate of preference reversal and bidding behavior in experimental auction valuation. Specifically we find that subjects exhibit more rational behavior under a positive mood state than under a negative mood state. Subjects in a positive mood provide lower bid values than others. Regardless of mood states, males tend to have a higher rate of preference reversal than females in mixed gender sessions. However, females tend to commit a higher rate of preference reversal in female only sessions than in mixed sessions while males tend to commit a lower rate of preference reversal when in male only sessions than in mixed sessions

Essays on Energy and Behavioral Financial Economics

AbstractsChapter 1 - An analysis of Turkey’s solar PV auction scheme: What can Turkey learn from Brazil and South Africa? As global investments continue in renewable energy technologies, investment costs have declined significantly. Meanwhile, many governments have shifted from pre-set renewable support schemes to auction schemes in order to introduce competition in price setting. Turkey has initiated Renewable Energy Resource Zone (RERZ) auctions to promote solar photovoltaic (PV) and wind technologies. We examine the first of these auctions, Solar PV RERZ, which has ambitious targets in terms of increasing solar PV capacity and enhancing domestic competence in solar technologies. Despite the auction being hailed as a success in terms of low prices, we utilize the Levelized Cost of Electricity generation (LCOE) analysis to demonstrate that the project is vulnerable to macroeconomic shocks and financial risks. Model results show that the capacity factor is the most prominent factor in costs, and a 10% change in the capacity factor affects the LCOE about the same rate. Investment cost and interest rate are the other major factors affecting the LCOE. Based on these results, we make recommendations by discussing how Turkey can improve its auction design by incorporating some of the elements used by Brazil and South Africa. Chapter 2 - How do macroeconomic dynamics affect small and medium-sized enterprises (SMEs) in the power sector in developing economies: Evidence from Turkey Developing economies are currently projected to hold a major share of the global energy demand in the upcoming decades, giving them a key role in addressing climate change. However, new renewable energy investments in these countries have so far been relatively slow. A specific set of challenges dominate the investment environment in developing countries, including higher exposure to macroeconomic and political risks, uncertainties due to climate change, limited domestic manufacturing capabilities, and heavy reliance on foreign debt in capital investments. These factors tend to disproportionately affect small and medium-sized enterprises (SMEs) which currently hold a sizeable share of renewable and distributed energy technology investments. Not only does this impact the viability of energy transition, but also has important energy justice and local economic development implications – an overlooked subject in literature. Using a rich, novel dataset and panel data methods, this paper estimates the effect of a set of key macroeconomic variables on the capital structure and investment outcomes of SMEs within the Turkish power sector. Our results indicate that unfavorable macroeconomic conditions, which lead to a significant growth in liabilities and increased risk of bankruptcy, can cause a slowdown in power sector SME investments despite the prevalence of subsidies. Chapter 3 - Should Children Listen to their Parents’ Investment Advice? This study investigates the impact of intergenerational advice on investment behavior in an experimental setting. We explore the effects of positive and negative advice from one generation to the next on asset allocation decisions. Results indicate that the transmission of advice can significantly influence investment behavior, as participants who received positive advice allocated a higher proportion of their portfolio to risky assets. The transmission of advice to allocations appears to be through participants forming more optimistic beliefs about future returns rather than any change in their risk preferences. Even when challenged by a significant downturn, the group that received positive advice continued to hold optimistic beliefs. The study also challenges the assumptions of modern portfolio theory and suggests that inexperienced investors may be more influenced by the advice of previous generations

Analysis of the United States' Sugar Industry

abstract: Unrestricted Mexican exports of sugar into the U.S. is considered the most pressing issue facing the U.S. sugar industry. The goal of this dissertation is to analyze the trade of sugar between Mexico and the U.S. as well as analyze additional primary issues confronting the U.S. sugar industry. Chapters 1 and 2 provide an introduction to the U.S. sugar industry. Chapters 3 through 6 develop trade models which analyze sugar trade between Mexico and the U.S. The trade models estimate how NAFTA, USDA sugar forecast errors and Mexican ownership of twenty percent of the Mexican sugar industry each impact U.S. producer surplus and Mexican welfare. Results validate that U.S. producer surplus and in some instances Mexican welfare were decreased by full implementation of NAFTA. U.S. producer surplus and Mexican welfare were decreased due to USDA sugar production forecasting errors. U.S. producer surplus would be increased if the Mexican government did not own twenty percent of Mexican sugar production. Using an online choice experiment, Chapter 7 assesses U.S. consumers' preferences and willingness to pay (WTP) for imported and genetically modified (GM) labeled sugar and sugar in soft drinks. Results indicate that consumers prefer bags of sugar and soft drinks labeled as "Not GM". Furthermore, consumers prefer sugar from Canada and the U.S. over sugar from Mexico, Brazil and the Philippines. Evidence is also provided that participants are more likely to choose actual products in the choice set rather than the "none of these" options when controlling for hypothetical bias by using consequentiality techniques. A non-hypothetical experimental auction was used in Chapter 8 to determine consumers' WTP for soft drinks labeled with sweetener and calorie information and analyzed the role of taste panels in an experimental auction. Results indicate that sugar is consumers' most preferred sweetener and calorie labeling is ineffective at influencing consumers to choose healthier soft drinks. Including taste in an experimental auction caused significant reductions in consumers' WTP for all soft drinks. Chapter 9 concludes by summarizing the results of this dissertation and discussing the future challenges facing the U.S. sugar industry.Dissertation/ThesisPh.D. Business Administration 201