An experimental study of auctions with a buy price under private and common values

Quazi Shahriar, John Wooders

    Research output: Contribution to journalArticle

    Abstract

    eBay's Buy It Now format allows a seller to list an auction with a "buy price" at which a bidder may purchase the item immediately and end the auction. When bidders are risk averse, then theoretically a buy price can raise seller revenue when values are private (but not when values are common). We report the results of laboratory experiments designed to determine whether in practice a buy price is advantageous to the seller. We find that a suitably chosen buy price yields a substantial increase in seller revenue when values are private, and a small (but statistically insignificant) increase in revenue when values are common. In both cases a buy price reduces the variance of seller revenue. A behavioral model which incorporates the winner's curse and the overweighting by bidders of their own signal explains the common value auction data better than the rational model.

    Original languageEnglish (US)
    Pages (from-to)558-573
    Number of pages16
    JournalGames and Economic Behavior
    Volume72
    Issue number2
    DOIs
    StatePublished - Jun 1 2011

    Fingerprint

    Experimental study
    Common values
    Seller
    Buy price
    Auctions
    Private values
    Revenue
    Risk-averse
    Purchase
    eBay
    Winner's curse
    Laboratory experiments
    Common-value auctions
    Behavioral model

    Keywords

    • Auction
    • Buy price
    • Common values
    • EBay
    • Laboratory experiments
    • Private values
    • Risk aversion

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    An experimental study of auctions with a buy price under private and common values. / Shahriar, Quazi; Wooders, John.

    In: Games and Economic Behavior, Vol. 72, No. 2, 01.06.2011, p. 558-573.

    Research output: Contribution to journalArticle

    Shahriar, Quazi ; Wooders, John. / An experimental study of auctions with a buy price under private and common values. In: Games and Economic Behavior. 2011 ; Vol. 72, No. 2. pp. 558-573.
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