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The Bidder's Curse

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  • Ulrike Malmendier
  • Young Han Lee

Abstract

We employ a novel approach to identify overbidding in auctions. We compare online auction prices to fixed prices for the same item on the same webpage. In detailed data on auctions of a board game, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent overbidding). A small fraction of overbidders, 17 percent of bidders, suffices to generate the large fraction of auctions with overbidding. We show that the observed behavior is inconsistent with rational behavior, even allowing for uncertainty about prices and switching costs, since the expected auction price also exceeds the fixed price. Limited attention best explains our results. (JEL D12, D44)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 2 (April)
Pages: 749-87

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:2:p:749-87

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References

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Citations

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Cited by:
  1. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  2. Bramsen, Jens-Martin, 2008. "A pseudo-endowment effect in internet auctions," MPRA Paper 14813, University Library of Munich, Germany.
  3. Englmaier, Florian & Schmöller, Arno & Stowasser, Till, 2013. "Price Discontinuities in an online used Car Market," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79982, Verein für Socialpolitik / German Economic Association.
  4. Rahaman, Mohammad M., 2014. "Do managerial behaviors trigger firm exit? The case of hyperactive bidders," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 92-110.
  5. Gary E Bolton & Axel Ockenfels, 2007. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," Working Paper Series in Economics 36, University of Cologne, Department of Economics, revised 24 Feb 2011.
  6. Pownall, Rachel A.J. & Wolk, Leonard, 2013. "Bidding behavior and experience in internet auctions," European Economic Review, Elsevier, vol. 61(C), pages 14-27.
  7. Shapiro, Dmitry & Zillante, Arthur, 2009. "Naming your own price mechanisms: Revenue gain or drain?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 725-737, November.
  8. Trevon Logan & Manisha Shah, 2009. "Face Value: Information and Signaling in an Illegal Market," NBER Working Papers 14841, National Bureau of Economic Research, Inc.
  9. Hammond, Robert G., 2013. "A structural model of competing sellers: Auctions and posted prices," European Economic Review, Elsevier, vol. 60(C), pages 52-68.
  10. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer, vol. 37(1), pages 3-42, August.
  11. Dennis Halcoussis & Timothy Mathews, 2007. "eBay auctions for Third Eye Blind concert tickets," Journal of Cultural Economics, Springer, vol. 31(1), pages 65-78, March.
  12. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.
  13. Bramsen, Jens-Martin, 2008. "Bid early and get it cheap - Timing effects in Internet auctions," MPRA Paper 14811, University Library of Munich, Germany.

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