Second-Chance Offers and Buyer Reputation: Theory and Evidence on Auctions with Default

Dirk Engelmann, Jeff Frank, Alexander K. Koch and Marieta Valente
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Alexander K. Koch: Aarhus University

No 237, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Winners in online auctions frequently fail to complete purchases. Major auction platforms therefore allow “second-chance” offers, where the runner-up bidder pays his own bid price, and they let sellers leave negative feedback on buyers who default. We show theoretically that (i) all else equal, the availability of second-chance offers reduces bids; (ii) sellers have no incentive to exclude bidders, even if they are nearly certain to default; (iii) buyer reputation systems reward bidders with a reputation for defaulting, counter to the idea of deterring such behavior. Our auction experiments support these predictions and provide insights on their practical relevance.

Keywords: auctions; default; reputation; second-chance offers (search for similar items in EconPapers)
JEL-codes: C91 D44 D83 L14 (search for similar items in EconPapers)
Date: 2020-04-21
New Economics Papers: this item is included in nep-des, nep-exp and nep-gth
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Working Paper: Second-Chance Offers and Buyer Reputation: Theory and Evidence on Auctions with Default (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:237

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