An experimental study of auctions with a buy price under private and common values

Quazi Shahriar and John Wooders

Games and Economic Behavior, 2011, vol. 72, issue 2, 558-573

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.

Keywords: Auction; Buy; price; eBay; Laboratory; experiments; Risk; aversion; Private; values; Common; values (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (10)

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