IDEAS home Printed from https://ideas.repec.org/p/ags/aaea04/20202.html
   My bibliography  Save this paper

Designing Experimental Auctions For Marketing Research: Effect Of Values, Distributions, And Mechanisms On Incentives For Truthful Bidding

Author

Listed:
  • Lusk, Jayson L.
  • Alexander, Corinne E.
  • Rousu, Matthew C.

Abstract

Accurately estimating consumer demand for new products is an arduous task made even more difficult by the fact that individuals tend to overstate the amount they are willing to pay for new goods when asked hypothetical questions. Despite their appeal in eliminating hypothetical bias, marketers have been slow to adopt experimental auctions as a standard tool in pre-test market research. One issue that has slowed adoption of the methodology is the proliferation of auction mechanisms and the lack of clear guidance in choosing between mechanisms. In this paper, we provide insight into the theoretical properties of two incentive compatible value elicitation mechanisms, the BDM and Vickrey 2nd price auction, such that practitioners can make more informed decisions in designing experimental auctions to determine consumer willingness-to-pay. In particular, we draw attention to the shapes of the payoff functions and show in a simulation that the two mechanisms differ with respect to the expected cost of deviating from truthful bidding. We show that incentives for truthful bidding depend on the distribution of competing bidders' values and/or prices and individuals' true values for a good. The simulation indicates the 2nd price auction punishes deviations from truthful bidding more severely for high value individuals than the BDM mechanism. These results are confirmed by an experimental study, where we find more accurate bidding for high-value individuals in the 2nd price auction as compared to the BDM. Our results also indicate that when implementing the BDM mechanism, the greatest incentives for truthful value revelation are created when the random price generator is based on a normal distribution centered on an individual's expected true value.

Suggested Citation

  • Lusk, Jayson L. & Alexander, Corinne E. & Rousu, Matthew C., 2004. "Designing Experimental Auctions For Marketing Research: Effect Of Values, Distributions, And Mechanisms On Incentives For Truthful Bidding," 2004 Annual meeting, August 1-4, Denver, CO 20202, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea04:20202
    DOI: 10.22004/ag.econ.20202
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/20202/files/sp04lu02.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.20202?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lusk, Jayson L., 2003. "Using Experimental Auctions for Marketing Applications: A Discussion," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(2), pages 1-12, August.
    2. John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
    3. Ty Feldkamp & Ted C. Schroeder, 2004. "Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 389-405.
    4. Fox, John A & Hayes, Dermot J & Shogren, Jason F, 2002. "Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 75-95, January.
    5. repec:feb:artefa:0069 is not listed on IDEAS
    6. Wallace E. Huffman & Matthew Rousu & Jason F. Shogren & Abebayehu Tegene, 2003. "The Public Good Value of Information from Agribusinesses on Genetically Modified Foods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1309-1315.
    7. Noussair, Charles & Robin, Stephane & Ruffieux, Bernard, 2002. "Do consumers not care about biotech foods or do they just not read the labels?," Economics Letters, Elsevier, vol. 75(1), pages 47-53, March.
    8. Charles Noussair & StÈphane Robin & Bernard Ruffieux, 2004. "Do Consumers Really Refuse To Buy Genetically Modified Food?," Economic Journal, Royal Economic Society, vol. 114(492), pages 102-120, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dragicevic, Arnaud Z. & Ettinger, David, 2011. "Private Valuation of a Public Good in Three Auction Mechanisms," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 2(2), pages 1-29, April.
    2. repec:ken:wpaper:0602 is not listed on IDEAS
    3. Ji Yong Lee & Rodolfo M. Nayga & Cary Deck & Andreas C. Drichoutis, 2020. "Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1494-1510, October.
    4. Lee, Ji Yong & Han, Doo Bong & Nayga Jr, Rodolfo M. & Lim, Song-Soo, 2011. "Valuing traceability of imported beef in Korea: an experimental auction approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 1-14, September.
    5. Ellison, Brenna & Kirwan, Barrett & Nepal, Atul, 2015. "Consumers' Willingness to Pay for Bioplastic Plant Containers: An Experimental Auction Approach," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205670, Agricultural and Applied Economics Association.
    6. Palma, Marco A. & Ness, Meghan L. & Anderson, David P., 2015. "Buying More than Taste? A Latent Class Analysis of Health and Prestige Determinants of Healthy Food," 2015 Conference (59th), February 10-13, 2015, Rotorua, New Zealand 202566, Australian Agricultural and Resource Economics Society.
    7. Chavez, Daniel & Palma, Marco, 2015. "Off the reservation: Pushing the bounds of rationality in experimental auctions," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 202164, Agricultural and Applied Economics Association.
    8. repec:dau:papers:123456789/6445 is not listed on IDEAS
    9. Sebastian Lehmann, 2014. "Toward an Understanding of the BDM: Predictive Validity, Gambling Effects, and Risk Attitude," FEMM Working Papers 150001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    10. Jay R. Corrigan & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga & Matthew C. Rousu, 2012. "Repeated Rounds with Price Feedback in Experimental Auction Valuation: An Adversarial Collaboration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 97-115.
    11. Kimenju, Simon Chege & De Groote, Hugo & Morawetz, Ulrich B., 2006. "Comparing Accuracy and Costs of Revealed and Stated Preferences: The Case of Consumer Acceptance of Yellow Maize in East Africa," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25642, International Association of Agricultural Economists.
    12. Borrello, M. & Cecchini, L. & Vecchio, R. & Caracciolo, F. & Cembalo, L. & Torquati, B., 2022. "Agricultural landscape certification as a market-driven tool to reward the provisioning of cultural ecosystem services," Ecological Economics, Elsevier, vol. 193(C).
    13. Palma, Marco & Ness, Meghan & Anderson, David, 2015. "Prestige as a Determining Factor of Food Purchases," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196694, Southern Agricultural Economics Association.
    14. Azucena GRACIA & Tiziana DE-MAGISTRIS, 2015. "The role of participants' competitiveness in consumers' valuation for food products using experimental auctions," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(10), pages 484-491.
    15. Dinah Pura T. Depositario & Rodolfo M. Nayga Jr & Yu Yvette Zhang & Robert Dominick E. Mariano, 2014. "Revisiting Cash Endowment and House Money Effects in an Experimental Auction of a Novel Agri-food Product in the Philippines," Asian Economic Journal, East Asian Economic Association, vol. 28(2), pages 201-215, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lusk Jayson L & Alexander Corinne & Rousu Matthew C., 2007. "Designing Experimental Auctions for Marketing Research: The Effect of Values, Distributions, and Mechanisms on Incentives for Truthful Bidding," Review of Marketing Science, De Gruyter, vol. 5(1), pages 1-32, October.
    2. Bruner, David M. & Huth, William L. & McEvoy, David M. & Morgan, O. Ashton, 2014. "Consumer Valuation of Food Safety: The Case of Postharvest Processed Oysters," Agricultural and Resource Economics Review, Cambridge University Press, vol. 43(2), pages 300-318, August.
    3. Jay Corrigan, 2005. "Is the Experimental Auction a Dynamic Market?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(1), pages 35-45, May.
    4. repec:ken:wpaper:0602 is not listed on IDEAS
    5. repec:ken:wpaper:0501 is not listed on IDEAS
    6. Rousu, Matthew C. & Monchuk, Daniel C. & Shogren, Jason F. & Kosa, Katherine M., 2005. "Consumer Willingness to Pay for "Second-Generation" Genetically Engineered Products and the Role of Marketing Information," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(3), pages 1-11, December.
    7. David M. Bruner & William L. Huth & David M. McEvoy & O. Ashton Morgan, 2011. "Accounting for Taste: Consumer Valuations for Food-Safety Technologies," Working Papers 11-09, Department of Economics, Appalachian State University.
    8. Jura Liaukonyte & Nadia A. Streletskaya & Harry M. Kaiser, 2015. "The Long-Term Impact of Positive and Negative Information on Food Demand," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 63(4), pages 539-562, December.
    9. Combris, Pierre & Giraud-Héraud, Eric & Pinto, Alexandra Seabra, 2015. "Relative willingness to pay and surplus comparison mechanism," 143rd Joint EAAE/AAEA Seminar, March 25-27, 2015, Naples, Italy 202755, European Association of Agricultural Economists.
    10. Maurice Doyon & Céline Jullien & JoAnne Labrecque, 2011. "Mesure des propensions individuelles à payer pour les aliments fonctionnels : Une approche expérimentale auprès de consommateurs français," CIRANO Working Papers 2011s-59, CIRANO.
    11. Marette, Stephan & Roosen, Jutta & Blanchemanche, Sandrine & Verger, Philippe, 2008. "The Choice of Fish Species: An Experiment Measuring the Impact of Risk and Benefit Information," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(1), pages 1-18, April.
    12. Frank van Tongeren & John Beghin & Stéphane Marette, 2009. "A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade," OECD Food, Agriculture and Fisheries Papers 21, OECD Publishing.
    13. Lee, Ji Yong & Fox, John A., 2016. "The effects of allowing substitutes on bidding behavior in a private value experimental auction," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235900, Agricultural and Applied Economics Association.
    14. Matthew C. Rousu & Robert H. Beach & Jay R. Corrigan, 2008. "The Effects of Selling Complements and Substitutes on Consumer Willingness to Pay: Evidence from a Laboratory Experiment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(2), pages 179-194, June.
    15. McFadden, Brandon R. & Lusk, Jayson L., 2013. "Effects of Cost and Campaign Advertising on Support for California’s Proposition 37," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(2), pages 1-13, August.
    16. Karavolias, Joanna & House, Lisa A., "undated". "Impact of Producer and Use of Biotechnology on Consumer Willingness to Pay: Discounts Required for Oranges Produced with Biotechnology," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259981, Agricultural and Applied Economics Association.
    17. Irz, Xavier & Mazzocchi, Mario & Réquillart, Vincent & Soler, Louis-Georges, 2015. "Research in Food Economics: past trends and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 187-237, March.
    18. Kanter, Christopher & Messer, Kent D. & Kaiser, Harry M., 2008. "Do rBST-Free and Organic Milk Stigmatize Conventionally Produced Milk?," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 43491, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Huffman, Wallace & Rousu, M. & Shogren, Jason F. & Tegene, Abebayehu, 1009. "Are U.S. Consumers Tolerant of GM Foods?," Staff General Research Papers Archive 12336, Iowa State University, Department of Economics.
    20. Nayga, Rodolfo M., Jr. & Shaw, W. Douglass & Silva, Andres, 2006. "The Effect of Risk Presentation on Product Valuation: An Experimental Analysis," 2006 Annual meeting, July 23-26, Long Beach, CA 21429, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    21. Bernard Ruffieux & Anne Rozan & Stéphane Robin, 2008. "Mesurer les préférences du consommateur pour orienter les décisions des pouvoirs publics : l'apport de la méthode expérimentale," Économie et Prévision, Programme National Persée, vol. 182(1), pages 113-127.
    22. Roosen, Jutta & Bieberstein, Andrea & Marette, Stephan & Blanchemanche, Sandrine & Vandermoere, Frederic, 2011. "The Effect of Information Choice and Discussion on Consumers' Willingness-to-Pay for Nanotechnologies in Food," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(2), pages 1-10, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea04:20202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.