Selling a dollar for more than a dollar? Evidence from online penny auctions

Zhongmin Wang and Minbo Xu

Information Economics and Policy, 2016, vol. 36, issue C, 53-68

Abstract: Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as “the evil stepchild of game theory and behavioral economics.” In this paper, we use the complete bid and bidder history at such a website to show that penny auctions cannot sell a dollar for more than a dollar in the long run because of bidder learning across auctions and bidder heterogeneity in strategic sophistication. The website we study profited from a revolving door of new bidders but lost money to experienced bidders as a group because of the existence of experienced and strategically sophisticated bidders who profit from the website.

Keywords: Penny auction; Behavioral industrial organization; Strategic sophistication (search for similar items in EconPapers)
JEL-codes: D03 D44 L81 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:36:y:2016:i:c:p:53-68

DOI: 10.1016/j.infoecopol.2016.07.001

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