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Behavior in Second-Price Auctions by Highly Experienced eBay Buyers and Sellers

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  • Garratt, Rod
  • Walker, Mark
  • Wooders, John

Abstract

When second-price auctions have been conducted in the laboratory, most of the observed bids have been “overbids†(bids that exceed the bidder’s value) and there are very few underbids. Few if any of the subjects in those experiments had any prior experience bidding in auctions. We report on sealed-bid second-price auctions that we conducted on the Internet using subjects with substantial prior experience: they were highly experienced participants in eBay auctions. Unlike the novice bidders in previous (laboratory) experiments, the experienced bidders exhibited no greater tendency to overbid than to underbid. However, even subjects with substantial prior experience tend not to bid their values, suggesting that the non-optimal bidding of novice subjects is robust to substantial experience in non-experimental auctions. A key determinant of bidding behavior was whether a subject had ever been a seller on eBay.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt7s72r56p.

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Date of creation: 29 Mar 2004
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Handle: RePEc:cdl:ucsbec:qt7s72r56p

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Keywords: auctions; overbidding; eBay; experienced bidders; buyers; sellers;

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References

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  1. Ronald Harstad, 2000. "Dominant Strategy Adoption and Bidders' Experience with Pricing Rules," Experimental Economics, Springer, Springer, vol. 3(3), pages 261-280, December.
  2. Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(419), pages 868-79, July.
  3. Werner Güth & Radosveta Ivanova-Stenzel, . "Asymmetric Auction Experiments With(out) Commonly Known Beliefs," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2002-36, Max Planck Institute of Economics, Strategic Interaction Group.
  4. Oliver Kirchkamp, & Philipp Reiß, 2006. "Another explanation for overbidding and another bias for underbidding in first-price auctions," CRIEFF Discussion Papers, Centre for Research into Industry, Enterprise, Finance and the Firm 0606, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. David Lucking-Reiley & Charles H. Mullin, 2000. "Recombinant Estimation for Normal-Form Games, with Applications to Auctions and Bargaining," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0014, Vanderbilt University Department of Economics.
  6. Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001. "Bidding behavior in asymmetric auctions: An experimental study," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  7. David J. Cooper & John H. Kagel, 2009. "The Role of Context and Team Play in Cross-Game Learning," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(5), pages 1101-1139, 09.
  8. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1093-1103, September.
  9. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 18(1), pages 1-22, January.
  10. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments, The Field Experiments Website 00297, The Field Experiments Website.
  11. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, Econometric Society, vol. 55(6), pages 1275-1304, November.
  12. repec:wop:humbsf:1999-70 is not listed on IDEAS
  13. Garratt, Rod & Walker, Mark & Wooders, John, 2004. "Behavior in Second-Price Auctions by Highly Experienced eBay Buyers and Sellers," University of California at Santa Barbara, Economics Working Paper Series, Department of Economics, UC Santa Barbara qt7s72r56p, Department of Economics, UC Santa Barbara.
  14. Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003. "Learning to bid - an experimental study of bid function adjustments in auctions and fair division games," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(487), pages 477-494, 04.
  15. Harstad, Ronald M., 1996. "Dominant Strategy Adoption, Efficiency, and Bidders' Experience with Pricing Rules," Discussion Paper Serie B, University of Bonn, Germany 357, University of Bonn, Germany.
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Citations

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Cited by:
  1. Paola Manzini & Marco Mariotti, 2007. "Choice over Time," Working Papers, Queen Mary, University of London, School of Economics and Finance 605, Queen Mary, University of London, School of Economics and Finance.
  2. Evans, Mary F. & Vossler, Christian A. & Flores, Nicholas E., 2009. "Hybrid allocation mechanisms for publicly provided goods," Journal of Public Economics, Elsevier, Elsevier, vol. 93(1-2), pages 311-325, February.
  3. Cason, Timothy N. & Saijo, Tatsuyoshi & Sjostrom, Tomas & Yamato, Takehiko, 2003. "Secure Implementation Experiments: Do Strategy-proof Mechanisms Really Work?," Working Papers, Pennsylvania State University, Department of Economics 4-03-1, Pennsylvania State University, Department of Economics.
  4. Daniel McFadden, 2009. "The human side of mechanism design: a tribute to Leo Hurwicz and Jean-Jacque Laffont," Review of Economic Design, Springer, Springer, vol. 13(1), pages 77-100, April.
  5. Young Han Lee & Ulrike Malmendier, 2007. "The Bidder's Curse," NBER Working Papers 13699, National Bureau of Economic Research, Inc.
  6. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 050, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Depositario, Dinah Pura T. & Nayga Jr., Rodolfo M. & Wu, Ximing & Laude, Tiffany P., 2009. "Should students be used as subjects in experimental auctions?," Economics Letters, Elsevier, Elsevier, vol. 102(2), pages 122-124, February.
  8. Matt Van Essen & John Wooders, 2013. "Blind Stealing: Experience and Expertise in a Mixed-Strategy Poker Experiment," Working Paper Series, Economics Discipline Group, UTS Business School, University of Technology, Sydney 6, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  9. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2010. "Buy-It-Now prices in eBay Auctions - The Field in the Lab," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 294, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Jones, Matthew T., 2011. "Bidding fever in eBay auctions of Amazon.com gift certificates," Economics Letters, Elsevier, Elsevier, vol. 113(1), pages 5-7, October.
  11. Rodney Garratt & Mark Walker & John Wooders, 2012. "Behavior in second-price auctions by highly experienced eBay buyers and sellers," Experimental Economics, Springer, Springer, vol. 15(1), pages 44-57, March.
  12. Genti Kostandini & Elton Mykerezi & Eftila Tanellari & Nour Dib, 2011. "Does Buyer Experience Pay Off? Evidence from eBay," Review of Industrial Organization, Springer, Springer, vol. 39(3), pages 253-265, November.
  13. Ertaç, Seda & Hortaçsu, Ali & Roberts, James W., 2011. "Entry into auctions: An experimental analysis," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 29(2), pages 168-178, March.
  14. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer, Springer, vol. 37(1), pages 3-42, August.

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