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An Experimental Analysis of Ending Rules in Internet Auctions

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  • Dan Ariely
  • Axel Ockenfels
  • Alvin E. Roth

Abstract

A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2002-47.

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Length: 36 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:esi:discus:2002-47

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References

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  1. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  2. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
  3. Roth, Alvin E & Murnighan, J Keith & Schoumaker, Francoise, 1988. "The Deadline Effect in Bargaining: Some Experimental Evidence," American Economic Review, American Economic Association, vol. 78(4), pages 806-23, September.
  4. Eric B. Rasmusen, 2001. "Starategic Implications of Uncertainty Over One's Own Private Value in Auctions," CIRJE F-Series CIRJE-F-127, CIRJE, Faculty of Economics, University of Tokyo.
  5. 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, vol. 92(4), pages 1093-1103, September.
  6. Posner, Richard A. & Avery, Christopher & Jolls, Christine & Roth, Alvin, 2001. "The Market for Federal Judicial Law Clerks," Scholarly Articles 2623748, Harvard University Department of Economics.
  7. Werner Güth & Maria Vittoria Levati & Boris Maciejovsky, 2001. "Deadline Effects in Ultimatum Bargaining: An Experimental Study of Concession Sniping with Low or no Costs of Delay," Papers on Strategic Interaction 2001-01, Max Planck Institute of Economics, Strategic Interaction Group.
  8. Haruvy, Ernan & Roth, Alvin E. & Unver, M. Utku, 2006. "The dynamics of law clerk matching: An experimental and computational investigation of proposals for reform of the market," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 457-486, March.
  9. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May.
  10. 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, vol. 55(6), pages 1275-1304, November.
  11. Simon Gächter & Arno Riedl, . "Moral Property Rights in Bargaining," IEW - Working Papers 113, Institute for Empirical Research in Economics - University of Zurich.
  12. Alvin E. Roth & Elliott Peranson, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," NBER Working Papers 6963, National Bureau of Economic Research, Inc.
  13. Axel Ockenfels & Alvin E. Roth, 2001. "The Timing of Bids in Internet Auctions: Market Design, Bidder Behavior, and Artificial Agents," Papers on Strategic Interaction 2002-33, Max Planck Institute of Economics, Strategic Interaction Group.
  14. Nick Feltovich, 2000. "Reinforcement-Based vs. Belief-Based Learning Models in Experimental Asymmetric-Information," Econometrica, Econometric Society, vol. 68(3), pages 605-642, May.
  15. Alvin E Roth & Richard A Posner & Christine Jolls & Christopher Avery, 2007. "The New Market for Federal Judicial Law Clerks," Levine's Bibliography 843644000000000288, UCLA Department of Economics.
  16. John H. Kagel & Alvin E. Roth, 2000. "The Dynamics Of Reorganization In Matching Markets: A Laboratory Experiment Motivated By A Natural Experiment," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 201-235, February.
  17. Patrick Bajari & Ali Hortacsu, 2000. "Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions," Econometric Society World Congress 2000 Contributed Papers 1927, Econometric Society.
  18. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  20. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
  21. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "How Effective are Online Reputation Mechanisms?," Papers on Strategic Interaction 2002-25, Max Planck Institute of Economics, Strategic Interaction Group.
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