Reserve Price Formation in Online Auctions

We use a unique hand collected data set of 6 258 auctions from the online football manager game Hattrick to study micro-patterns of reserve price formation. We find that chosen reserve prices exhibit both, very sophisticated and “irrational” behavior by the sellers. Reserve prices pick up the “birthday effect” in sales prices, documented in Englmaier and Schmöller (2008) and are adjusted remarkably nuanced to the resulting sales price pattern. Moreover, reserve prices are too clustered (around multiples of €50 000) as to be consistent with fully rational behavior. Furthermore, we find evidence for entitlement effects and the sunk cost fallacy as there is a huge positive effect on the reserve price when the player has been acquired previously.auctions, reserve price, bounded rationality, heuristics, entitlement effect

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.online auctions; experiments; buyout prices

An Empirical Investigation of Bidding Strategies and Their Effects on Online Single-Unit Auctions

Online bidding strategy is one of the most discussed topics in online auction research. This research aims to empirically confirm online bidding strategies in single-unit auctions and evaluate these strategies in the context of auction winning outcome, final price evaluation, and perceived enjoyment. Both objective and subjective data of online single-unit auctions were collected to validate our postulated hypotheses. Our findings suggest that there are three basic bidding strategies in single-unit auctions and they indeed have different impacts on auction biddings

Procurement auctions with avoidable fixed costs: an experimental approach

Bidders in procurement auctions often face avoidable fixed costs. This can make bidding decisions complex and risky, and market outcomes volatile. If bidders deviate from risk neutral best responses, either due to faulty optimization or risk attitudes, then equilibrium predictions can perform poorly. In this paper, we confront laboratory bidders with three auction formats that make bidding difficult and risky in different ways. We find that measures of `difficulty' provide a consistent explanation of deviations from best response bidding across the three formats. In contrast, risk and loss preferences cannot explain behavior across all three formats.Auctions; Experimental; Procurement; Synergies; Asymmetric Bidders; Learning; Optimization errors

EBay: Towards A Perfectly Competitive Market

The purpose of this paper is to explain how factors in eBay create an increasingly efficient marketplace that drives it towards the conditions of a perfectly competitive market.  Search and evaluation features that increase the efficiency of consumer decision making are examined and discussed in the context of information economics and market efficiency.  The increased problem solving capability of consumers enabled by features in eBay show that it is moving towards a perfectly competitive marketplace.  The continuous advancement of technology will further improve such market efficiencies and drive toward a perfect Internet marketplace.  EBay’s ‘near perfect’ market conditions creates challenging conditions such as lowly dispersed and market driven prices, wide consumer choice, and consequently diminished advertising efforts.  This implies challenges mainly in the areas of differentiation and positioning strategies by businesses to mitigate the effects of eBay’s continuing shift towards perfectly competitive market conditions.  It is important for businesses that are used to operating in the conditions of monopolistic competition associated with traditional market efficiencies to strategize for the upcoming challenges of near perfect market conditions facilitated by efficient market platforms such as eBay

Pay-to-Bid Auctions

We analyze a new auction format in which bidders pay a fee each time they increase the auction price. Bidding fees are the primary source of revenue for the seller, but produce the same expected revenue as standard auctions. Our model predicts a particular distribution of ending prices, which we test against observed auction data. Our model fits the data well for over three-fourths of routinely auctioned items. The notable exceptions are video game paraphernalia, which show more aggressive bidding and higher expected revenue. By incorporating mild risk-loving preferences in the model, we explain nearly all of the auctions.