The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions

Abstract

Abstract:With a laboratory experiment, we study the impact of buy-options and the corresponding buy-price on revenues and bidding behavior in (online) proxy-auctions with independent private valuations. We show that temporary buy-options may reduce revenues for two reasons: At low buy-prices, the application of the buy-option avoids revenue-enhancing bidding; at high buy-prices, bidders are reluctant to bid above the option price (even though the option is no longer available once an auction has started). The latter suggests a particular type of anchoring, where bidders use the buy-price to update their expectations about the strengths of their opponents.

How do sellers benefit from Buy-It-Now prices in eBay auctions?

“…Several studies (e.g., Shahriar andWooders (2011), Durham et al (2004), Dodonova and Khoroshilov (2004), Durham et al (2013)) report a revenue increase due to the existence of a BIN-price prior to the auction. On the contrary, Peeters et al (2016) find that the introduction of a BIN-option may have the opposite effect, i.e., it unambiguously reduces revenue and, in the case of consistently low BIN-price offers, also efficiency.…”

“…Moreover, the experimental studies so far do not provide a clear-cut answer to the question whether sellers benefit from the use of the BIN-option. While Shahriar and Wooders (2011) and Durham et al (2013) identify a revenue-enhancing effect of the exogenously chosen BIN-prices, Peeters et al (2016) demonstrate that the introduction of a BIN-price may reduce seller revenue. Empirical studies report similar contradictory results.…”

“…They find that the observed buyer behavior is in line with the theoretical predictions. Peeters et al (2016) apply an auction format that permits proxy bidding as on 1 Under the standard assumptions of the symmetric independent private value (SIPV) environment with riskneutral bidders, the use of a "take-it-or-leave-it" price offer prior to the auction can indeed not be explained. The optimal price is set that high that it is never accepted (e.g., Kirkegaard (2006)).…”

Comportamiento de los agentes en el comercio electrónico según modelos de localización

“…Cada modalidad ha servido como foco de estudio para evaluar la relación e interacción entre productores y consumidores en el mercado de subastas online (Kuruzovich y Etzion, 2018), las implicaciones de las estrategias usadas por los productores (Muthitacharoen y Tams, 2017) y aún más recientemente se encuentra en el ojo del huracán la modalidad Mays. "Buy it Now Auctions" con resultados contradictorios concernientes al beneficio derivado para los productores por su utilización (Grebe, Ivanova-Stenzel y Kröger, 2018;Peeters, Strobel, Vermeulen y Walzl, 2016;Bauner, 2015).…”

Anchored strategic reasoning

“…Starting with the seminal work of Tversky and Kahneman (1974), it has been extensively studied in the context of judgment with a focus on individual decision-making. 1 There is also plenty of empirical evidence showing that irrelevant numbers influence strategic choices, for example, in asset markets (Baghestanian and Walker, 2015), negotiations (Galinsky and Mussweiler, 2001), and auctions (Holst et al, 2015;Medcalfe, 2016;Wolk and Spann, 2008;Peeters et al, 2016;Trautmann and Traxler, 2010;Ku et al, 2006). Using a controlled laboratory experiment aimed at identifying anchoring effects and their robustness in games of incomplete information, Ivanova-Stenzel and Seres (2021) show that bids in auctions are adjusted to irrelevant numbers in different contexts and different auction mechanisms.…”