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

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  • Shahriar, Quazi
  • Wooders, John

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.

Suggested Citation

  • Shahriar, Quazi & Wooders, John, 2011. "An experimental study of auctions with a buy price under private and common values," Games and Economic Behavior, Elsevier, vol. 72(2), pages 558-573, June.
  • Handle: RePEc:eee:gamebe:v:72:y:2011:i:2:p:558-573
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    Cited by:

    1. Freeman, David J. & Kimbrough, Erik O. & Reiss, J. Philipp, 2020. "Opportunity cost, inattention and the bidder’s curse," European Economic Review, Elsevier, vol. 129(C).
    2. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2016. "“Buy-It-Now” or “Sell-It-Now” auctions: Effects of changing bargaining power in sequential trading mechanisms," Economics Letters, Elsevier, vol. 142(C), pages 27-30.
    3. Ivanova-Stenzel, Radosveta & Grebe, Tim & Kröger, Sabine, 2019. "How do sellers benefit from Buy-It-Now prices in eBay auctions?," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203606, Verein für Socialpolitik / German Economic Association.
    4. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2021. "How do sellers benefit from Buy-It-Now prices in eBay auctions?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 189-205.
    5. Bauner, Christoph, 2015. "Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers," International Journal of Industrial Organization, Elsevier, vol. 38(C), pages 19-31.
    6. Ronald Peeters & Martin Strobel & Dries Vermeulen & Markus Walzl, 2016. "The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions," Games, MDPI, vol. 7(1), pages 1-19, March.
    7. Peitz, Martin & Waldfogel, Joel, 2012. "The Oxford Handbook of the Digital Economy," OUP Catalogue, Oxford University Press, number 9780195397840, Decembrie.

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