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

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

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

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