Price formation in a sequential selling mechanism

This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second–price sealed–bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers’ behavior, but is not sufficient to explain sellers’ decisions. We discuss other behavioral explanations that could account for the observed deviations

How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab

In this paper we introduce a new type of experiment that combines the advantages of lab and field experiments. The experiment is conducted in the lab but using an unchanged market environment from the real world. Moreover, a subset of the standard subject pool is used, containing those subjects who have experience in conducting transactions in that market environment. This guarantees the test of the theoretical predictions in a highly controlled environment and at the same time enables not to miss the specific features of economic behavior exhibited in the field. We apply the proposed type of experiment to study seller behavior in online auctions with a Buy-It-Now feature, where early potential bidders have the opportunity to accept a posted price offer from the seller before the start of the auction. Bringing the field into the lab, we invited eBay buyers and sellers into the lab to participate in a series of auctions on the eBay platform. We investigate how traders' experience in a real market environment influences their behavior in the lab and whether abstract lab experiments bias subjects' behavior

Contracts as Reference Points: Experimental Evidence

In a recent paper, Hart and Moore (2008) introduce new behavioral assumptions that can explain long term contracts and important aspects of the employment relation. However, so far there exists no direct evidence that supports these assumptions and, in particular, Hart and Moore's notion that contracts provide reference points. In this paper, we examine experimentally the behavioral forces stipulated in their theory. The evidence confirms the model's prediction that there is a tradeoff between rigidity and flexibility in a trading environment with incomplete contracts and ex ante uncertainty about the state of nature. Flexible contracts – which would dominate rigid contracts under standard assumptions –cause a significant amount of shading on ex post performance while under rigid contracts much less shading occurs. Thus, although rigid contracts rule out trading in some states of the world, parties frequently implement them. While our results are broadly consistent with established behavioral concepts, they cannot easily be explained by existing theories. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract.contracts, reference points, experiment

An investigation of the trading agent competition : a thesis presented in partial fulfilment of the requirements for the degree of Master of Science in Computer Science at Massey University, Albany, New Zealand

The Internet has swept over the whole world. It is influencing almost every aspect of society. The blooming of electronic commerce on the back of the Internet further increases globalisation and free trade. However, the Internet will never reach its full potential as a new electronic media or marketplace unless agents are developed. The trading Agent Competition (TAC), which simulates online auctions, was designed to create a standard problem in the complex domain of electronic marketplaces and to inspire researchers from all over the world to develop distinctive software agents to a common exercise. In this thesis, a detailed study of intelligent software agents and a comprehensive investigation of the Trading Agent Competition will be presented. The design of the Risker Wise agent and a fuzzy logic system predicting the bid increase of the hotel auction in the TAC game will be discussed in detail

How Do Informal Agreements and Renegotiation Shape Contractual Reference Points?

Previous experimental work provides encouraging support for some of the central assumptions underlying Hart and Moore (2008)’s theory of contractual reference points. However, existing studies ignore realistic aspects of trading relationships such as informal agreements and ex post renegotiation. We investigate the relevance of these features experimentally. Our evidence indicates that the central behavioral mechanism underlying the concept of contractual reference points is robust to the presence of informal agreements and ex post renegotiation. However, our data also reveal new behavioral features that suggest refinements of the theory. In particular, we find that the availability of informal agreements and ex post renegotiation changes how trading parties evaluate ex post outcomes. Interestingly, the availability of these additional options affects ex post evaluations even in situations in which the parties do not use them.

How Do Informal Agreements and Renegotiation Shape Contractual Reference Points?

Previous experimental work provides encouraging support for some of the central assumptions underlying Hart and Moore (2008)’s theory of contractual reference points. However, existing studies ignore realistic aspects of trading relationships such as informal agreements and ex post renegotiation. We investigate the relevance of these features experimentally. Our evidence indicates that the central behavioral mechanism underlying the concept of contractual reference points is robust to the presence of informal agreements and ex post renegotiation. However, our data also reveal new behavioral features that suggest refinements of the theory. In particular, we find that the availability of informal agreements and ex post renegotiation changes how trading parties evaluate ex post outcomes. Interestingly, the availability of these additional options affects ex post evaluations even in situations in which the parties do not use them.contracts, reference points, fairness, renegotiation, informal agreement

Online Auctions

The economic literature on online auctions is rapidly growing because of the enormous amount of freely available field data. Moreover, numerous innovations in auction-design features on platforms such as eBay have created excellent research opportunities. In this article, we survey the theoretical, empirical, and experimental research on bidder strategies (including the timing of bids and winner's-curse effects) and seller strategies (including reserve-price policies and the use of buy-now options) in online auctions, as well as some of the literature dealing with online-auction design (including stopping rules and multi-object pricing rules).

Revenue Equivalence Revisited

The conventional wisdom in the auction design literature is that first price sealed bid auctions tend to make more money while ascending auctions tend to be more efficient. We re-examine these issues in an environment in which bidders are allowed to endogenously choose in which auction format to participate. Our findings are that more bidders choose to enter the ascending auction than the first price sealed bid auction and this extra entry is enough to make up the revenue difference between the formats. Consequently, we find that both formats raise approximately the same amount of revenue. They also generate efficiency levels and bidder earnings that are roughly equivalent across mechanisms though the earnings in the ascending might be slightly higher. In expected utility terms though, we find that the expected utility of entering a first price sealed bid auction is greater than entering an ascending for any risk averse bidder suggesting that we are seeing “overentry” into the ascending auctions

How Institutions Affect Outcomes in Laboratory Tradable Fishing Allowance Systems

The objective of this paper is to illustrate that economic institutions matter, i.e., that different rules of trade present different incentives for bidding, asking, and trading in new markets, and that these different incentives lead to different price discovery patterns, which yield materially different outcomes. In a laboratory tradable fishing allowance system, when trade takes place through a double auction, which parallels an institution common in extant tradable allowance systems, markets are characterized by high volatility, and equilibrium does not obtain. However, when only leases, and not permanent trades, are permitted in the early periods, volatility is significantly reduced and equilibrium obtains. This dependence of equilibration and outcomes on institutions implies policy-oriented economists must consider institutions in designing new market-based management systems.Resource /Energy Economics and Policy,