An experimental study of auctions with a buy price under private and common values |
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| Institution: | 1. Department of Economics, San Diego State University, San Diego, CA 92182, United States;2. Department of Economics, Eller College of Management, University of Arizona, Tucson, AZ 85721, United States;1. Dept. of Applied Mathematics, Computer Science & Statistics, Ghent University, Krijgslaan 281, 9000 Gent, Belgium;2. School of Computer Science & Informatics, Cardiff University, Queen''s Buildings, 5 The Parade, Roath, Cardiff CF24 3AA, UK;3. Computational Modeling Lab, Vrije Universiteit Brussel, Pleinlaan 2, 1050 Brussels, Belgium;4. Institute of Technology, UW Tacoma, 1900 Commerce Street, Tacoma, WA 98402, United States;1. Dipartimento di Filosofia, Università degli Studi di Milano, Italy;2. School of Electronics and Computer Science, University of Southampton, UK;1. London School of Economics, Houghton St, London WC2A 2AE, UK;2. Department of Economics and Business, University of Catania, Italy |
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| 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. |
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