The Role of Risk Preferences in Pay-to-Bid Auctions

Brennan Platt, Joseph Price and Henry Tappen ()
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Henry Tappen: Microsoft Corporation, Redmond, Washington, 98052

Management Science, 2013, vol. 59, issue 9, 2117-2134

Abstract: We analyze a new auction format in which bidders pay a fee each time they increase the auction price. Bidding fees are the primary source of revenue for the seller but produce the same expected revenue as standard auctions (assuming risk-neutral bidders). If risk-loving preferences are incorporated in the model, expected revenue increases. Our model predicts a particular distribution of ending prices, which we test against observed auction data. The degree of fit depends on how unobserved parameters are chosen; in particular, a slight preference for risk has the biggest impact in explaining auction behavior, suggesting that pay-to-bid auctions are a mild form of gambling. This paper was accepted by Peter Wakker, decision analysis.

Keywords: penny auction; bid fees; risk-loving preferences (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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