Second-Chance Offers and Buyer Reputation: Theory and Evidence on Auctions with Default
Dirk Engelmann (),
Alexander K. Koch and
Marieta Valente ()
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Jeff Frank: Royal Holloway, University of London
Alexander K. Koch: Aarhus University
No 237, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
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)
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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