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An Experimental Analysis of Ending Rules in Internet Auctions

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Author Info
Dan Ariely
Axel Ockenfels
Alvin E. Roth

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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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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
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Handle: RePEc:esi:discus:2002-47

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ernan Haruvy & Alvin E. Roth & M. Utku Unver, 2004. "The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market," Experimental 0404001, EconWPA. [Downloadable!]
    Other versions:
  2. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!]
  5. Simon Gaechter & Arno Riedl, 2002. "Moral Property Rights in Bargaining," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. 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. [Downloadable!]
  7. Christopher Avery & Christine Jolls & Richard Posner & Alvin E. Roth, 2007. "The New Market for Federal Judicial Law Clerks," NBER Working Papers 13213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
    Other versions:
  10. Nick Feltovich, 2000. "Reinforcement-Based vs. Belief-Based Learning Models in Experimental Asymmetric-Information," Econometrica, Econometric Society, vol. 68(3), pages 605-642, May.
  11. 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. [Downloadable!] (restricted)
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  12. John Asker & Brit Grosskopf & C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth & Georg Weizsäcker, 2004. "Teaching Auction Strategy Using Experiments Administered via the Internet," Journal of Economic Education, Helen Dwight Reid Foundation, vol. 35(4), pages 330-342. [Downloadable!]
  13. Eric Rasmusen, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," Advances in Theoretical Economics, Berkeley Electronic Press, vol. 6(1), pages 1261-1261. [Downloadable!] (restricted)
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  14. 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. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  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. [Downloadable!]
  18. 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. [Downloadable!]
  19. 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. [Downloadable!] (restricted)
  20. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicola Dimitri, 2007. "Last minute bidding equilibrium in second price internet auctions," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 001, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  2. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "Bridging the Trust Gap in Electronic Markets," Papers on Strategic Interaction 2002-26, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  3. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, vol. 38(1), pages 9-39, January. [Downloadable!] (restricted)
    Other versions:
  4. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003. "How Effective are Electronic Reputation Mechanisms? An Experimental Investigation," Working Paper Series in Economics 3, University of Cologne, Department of Economics. [Downloadable!]
  5. Ladislav Wintr, 2008. "Some evidence on late bidding in eBay auctions," Research series 200801-25, National Bank of Belgium. [Downloadable!]
  6. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. 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. [Downloadable!]
  8. Axel Ockenfels, 2002. "Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie -," Papers on Strategic Interaction 2002-46, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  9. Steve Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004. "Seller Strategies on eBay," Santa Cruz Department of Economics, Working Paper Series 1024, Department of Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  10. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2006. "How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab," Discussion Papers 181, 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 of Munich. [Downloadable!]
  11. Gary E. Bolton & Axel Ockenfels, 2008. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics. [Downloadable!]
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  13. Carlos Alós-Ferrer & Georg Kirchsteiger & Markus Walzl, 2007. "On the Evolution of Market Institutions: The Platform Design Paradox," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  14. Florian Englmaier & Arno Schmöller, 2008. "Reserve Price Formation in Online Auctions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  15. 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. [Downloadable!]
  16. Marta Stryszowska, 2004. "Late and Multiple Bidding in Competing Second Price," Working Papers 2004.16, Fondazione Eni Enrico Mattei. [Downloadable!]
  17. Gary Bolton, 2003. "How Effective are Electronic Reputation Mechanisms?," Working Papers gb1, The Pennsylvania State University, Laboratory for Economic Mangement and Auctions, revised 01 Aug 2003. [Downloadable!]
  18. 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. [Downloadable!]
    Other versions:
  19. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Seller strategies on eBay: Does size matter?," MPRA Paper 4324, University Library of Munich, Germany. [Downloadable!]
  20. James R. Wolf & Hal R. Arkes & Waleed A. Muhanna, 2008. "The power of touch: An examination of the effect of duration of physical contact on the valuation of objects," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3(6), pages 476-482, August. [Downloadable!]
  21. Sascha Füllbrunn, 2007. "Collusion or Sniping in simultaneous ascending Auctions," FEMM Working Papers 07025, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  22. Axel Ockenfels, 2002. "New Institutional Structures on the Internet: The Economic Design of Online Auctions," Papers on Strategic Interaction 2002-08, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  23. Brit Grosskopf & Alvin E. Roth, 2006. "If you are offered the Right of First Refusal, Should you accept? An Investigation of Contract Design," Levine's Bibliography 122247000000001017, UCLA Department of Economics. [Downloadable!]
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