Does It Pay Off to Bid Aggressively? An Empirical Study

Abstract

We empirically investigate the payoff of signaling through aggressiveness in an online auction. To address our research question, we use a unique and very rich dataset containing actual market transaction data for approximately 7,000 pay-per-bid auctions. Our research design allows us to isolate the impact of aggressive bidding, used in an attempt to signal a high valuation to deter other auction participants, on the probability of winning an auction. We analyze more than 600,000 bids placed manually by approximately 2,600 distinct auction participants. We find a strong and significant positive effect of aggressive bidding on the total number of bids placed, and on the total number of participants in an auction. The strong and significantly negative effect of aggressive bidding on the individual probability of winning an auction supports the finding that aggressive bidding is ineffective as a strategy for deterring competitors in an online auction.

The impact of strategic jump bidding in residential English auctions

“…A number of studies have investigated strategic jump bidding in internet auctions. Haruvy and Leszczyc (2010) find that jump bids are directly responsible for higher prices, and Herrmann et al (2016) show that jump bidding has a negative effect on the bidder's likelihood of winning the auction, and that the strategy is unsuccessful in deterring bidder participation. However, Easley and Tenorio (2004) find the strategy effective, as early jump bidding discourages later entry and fewer bids are placed overall.…”