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Selling a dollar for more than a dollar? Evidence from online penny auctions

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  • Wang, Zhongmin
  • Xu, Minbo

Abstract

Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as “the evil stepchild of game theory and behavioral economics.” In this paper, we use the complete bid and bidder history at such a website to show that penny auctions cannot sell a dollar for more than a dollar in the long run because of bidder learning across auctions and bidder heterogeneity in strategic sophistication. The website we study profited from a revolving door of new bidders but lost money to experienced bidders as a group because of the existence of experienced and strategically sophisticated bidders who profit from the website.

Suggested Citation

  • Wang, Zhongmin & Xu, Minbo, 2016. "Selling a dollar for more than a dollar? Evidence from online penny auctions," Information Economics and Policy, Elsevier, vol. 36(C), pages 53-68.
    • Handle: RePEc:eee:iepoli:v:36:y:2016:i:c:p:53-68
    DOI: 10.1016/j.infoecopol.2016.07.001
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    1. Brünner, Tobias & Reiner, Jochen & Natter, Martin & Skiera, Bernd, 2019. "Prospect theory in a dynamic game: Theory and evidence from online pay-per-bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 215-234.

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    More about this item

    Keywords

    Penny auction; Behavioral industrial organization; Strategic sophistication;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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