Premium Auctions and Risk Preferences: An Experimental Study

In premium auctions, the highest losing bidder receives a reward from the seller. This paper studies the private value English premium auction (EPA) for different risk attitudes of bidders. We explicitly derive the symmetric equilibrium for bidders with CARA utilities and conduct an experimental study to test the theoretical predictions. In our experiment, subjects are sorted into risk-averse and risk loving groups. We find that revenues in the EPA are significantly higher when bidders are risk loving rather than risk averse. These results are partly consistent with theory and confirm the general view that bidders’ risk preferences constitute an important factor that affects bidding behavior and consequently also the seller’s expected revenue. However, individual subjects rarely follow the equilibrium strategy and as a result, revenue in our experiment is lower than in the symmetric equilibrium

Experimental Evidence of Risk Aversion in Consumer Markets: The Case of Beef Tenderness

We use an experimental auction market to investigate how inconsistency in tenderness affects consumers' WTP for beef. We find that both the level and the spread of tenderness affect consumers' WTP. Categorization the beef into various classes of tenderness increased the total value of the beef by 8%.Consumer/Household Economics,

Experimental Evidence of Risk Aversion in Consumer Markets: The Case of Beef Tenderness

Consistency of quality is important for brand loyalty and market share in consumer markets. Among consumers of beef, tenderness is the primary quality attribute. We use an experimental auction market to investigate how inconsistency in tenderness affects consumers willingness to pay (WTP) for beef. We find that both the level and the spread of tenderness affect consumers WTP for beef. Categorization the beef into various classes of tenderness increased the total value of the beef by 8%, which suggests that improved tenderness labeling may be a profitable strategy.beef tenderness, consumer demand, experimental auction, marketing, risk aversion, Consumer/Household Economics, C91, D12, D8, Q13,

Auctioning Rough Diamonds: A Competitive Sales Process for BHP Billiton’s Ekati Diamonds

We describe a new approach for selling rough diamonds through competitive auctions. The classical approach of De Beers—giving each customer a bag of stones and a take-it-or-leave-it price—worked well in near monopoly circumstances, but is ill-suited for competitive producers. Competitive producers, like BHP Billiton, benefit from getting the diamonds to those who value them the most. Beginning in 2008, BHP Billiton introduced a simple auction process to assign its Ekati diamonds to the highest bidders at competitive market prices. A Spot auction, ten times per year, is used to establish prices for each of nineteen deals of diamonds grouped by size, color, and quality. A Term auction allows customers to lock in a long-term supply commitment at prices indexed to future Spot auctions. A Specials auction, two or three times per year, prices large stones. The auctions use an ascending-clock format in which prices increase for each product until there is no excess demand. This approach allows customers to discover market prices, while managing portfolio and budget constraints. The approach has proven remarkably successful in pricing and allocating the mine’s output even in the face of the global financial crisis.diamond auctions, market design

Experimental auctions, collective induction and choice shift: willingness-to-pay for rice quality in Senegal

We propose a collective induction treatment as an aggregator of information and preferences, which enables testing whether consumer preferences for food quality elicited through experimental auctions are robust to aggregation. We develop a two-stage estimation method based on social judgement scheme theory to identify the determinants of social influence in collective induction. Our method is tested in a market experiment aiming to assess consumers willingness-to-pay for rice quality in Senegal. No significant choice shift was observed after collective induction, which suggests that consumer preferences for rice quality are robust to aggregation. Almost three quarters of social influence captured by the model and the variables was explained by social status, market expertise and information

Valuing Conflicting Public Information About a New Technology: The Case of Irradiated Foods

Scientists and advocates can disagree on the value of new products or technologies, such as growth hormones, genetically modified organisms, and food irradiation. Both sides of the debate disseminate information to the public hoping to influence public opinion. This study assesses the economic value of both pro and anti public information using food irradiation as a case study. The value of information sources is estimated in isolation and in combination. In isolation, the results indicate each set of information has value. In combination, only the anti-irradiation information is found to have net positive value (persuading some consumers to purchase non-irradiated products). Pro-irradiation information worked to decrease the value of anti-irradiation information by 68% per person.experimental auctions, irradiation, value of information, Research and Development/Tech Change/Emerging Technologies,

Beef Producer Choice in Cattle Marketing

In addition to the conventional auction method of cattle marketing, some alternative marketing arrangements include sale by private treaty, video auction, retained ownership, and use of strategic alliances. This study finds that 91% of Louisiana producers use conventional auctions, while 39% use other types of marketing arrangements. The most heavily used alternative marketing arrangement is private treaty, at 26%. Those producers using alternative marketing arrangements tend to be larger, have heavier weaning weights, have more diverse farming operations, be younger, have greater contact with their county extension agents, and depend less on income from off-farm sources.cattle marketing, conventional auction, private treaty, strategic alliance, video auction, Livestock Production/Industries, Marketing,

BEEF PRODUCER CHOICE IN CATTLE MARKETING

In addition to the conventional auction method of cattle marketing, alternative marketing arrangements include sale by private treaty, video auction, retained ownership, and use of strategic alliances. This study examines use of alternative marketing arrangements and types of producers using each. Thirty-nine percent of producers used alternative arrangements.Marketing,

Discounting Spotted Apples: Investigating Consumersï¾’ Willingness to Accept Cosmetic Damage in an Organic Product

Organic producers have limited methods of avoiding plant diseases that result in cosmetic damage to produce. Therefore, the appearance of organic produce is often less than perfect. We use an experimental auction to investigate how cosmetic damage affects consumersï¾’ willingness to pay for organic apples. We find that 75% of the participants are willing to pay more for organic than for conventional apples given identical appearance. However, at the first sight of any imperfection in the appearance of the organic apples, this segment is significantly reduced. Furthermore, we find that there is a significant effect of interaction between cosmetic damage and product methods. Even though most consumers say they buy organic products to avoid pesticides, we find that cosmetic damage has a larger impact on the willingness to pay for organic apples than for conventional apples.