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The impact of the irrelevant – Temporary buy-options and bidding behavior in online auctions

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Author Info
Peeters, Ronald
Strobel, Martin
Vermeulen, Dries
Walzl, Markus (METEOR)

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Abstract

In a laboratory experiment, we investigate the impact of temporary buy-options on efficiency, revenues, and bidding behavior in online proxy-auctions when bidders have independent private valuations. We show that the introduction of a buy-option reduces efficiency and at the same time fails to enhance revenues. In particular, we observe that the former presence of a temporary buy-option lowers final prices in an auction (even though the option is no longer available once an auction has started). If bidders have imprecise information about their private value, auction prices are increasing in the price of the buy-option which suggests anchoring as an explanation. Surprisingly, the former presence of a temporary buy-option also tends to reduce final auction prices if bidders are perfectly informed about their private value. In fact, we demonstrate that bidders are reluctant to bid above the option price regardless of the precision of their private information and the price of the option.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 027.

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Date of creation: 2007
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Handle: RePEc:dgr:umamet:2007027

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Keywords: microeconomics ;

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  2. Bettina Klaus & Flip Klijn, 2006. "Median Stable Matching for College Admissions," International Journal of Game Theory, Springer, vol. 34(1), pages 1-11, April. [Downloadable!] (restricted)
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  3. Roth, Alvin E., 1985. "The college admissions problem is not equivalent to the marriage problem," Journal of Economic Theory, Elsevier, vol. 36(2), pages 277-288, August. [Downloadable!] (restricted)
  4. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier. [Downloadable!] (restricted)
  5. Chung, Kim-Sau, 2000. "On the Existence of Stable Roommate Matchings," Games and Economic Behavior, Elsevier, vol. 33(2), pages 206-230, November. [Downloadable!] (restricted)
  6. Martinez, Ruth & Masso, Jordi & Neme, Alejandro & Oviedo, Jorge, 2000. "Single Agents and the Set of Many-to-One Stable Matchings," Journal of Economic Theory, Elsevier, vol. 91(1), pages 91-105, March. [Downloadable!] (restricted)
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