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Effects of minimum bid increment in internet auctions: Evidence from a field experiment

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  • Janne Tukiainen
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    Abstract

    I study the role of minimum bid increments (MBI) in internet auctions using field experiment data. I sell identical gift cards while varying the MBI. Internet auctions have typically been viewed as second-price, implying truthful bidding. However, due to the presence of the MBI, equilibrium bidding behavior involves bid-shading. I test between truthful bidding and equilibrium bidding. Truthful bidding is rejected. Bidders conduct bid-shading in a pattern consistent with equilibrium bidding. I also report that the revenue maximizing level for the MBI is higher than zero and the eBay level is close to optimal. Moreover, a high MBI inefficiently limits entry.

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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 44.

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    Date of creation: 15 Feb 2013
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    Handle: RePEc:fer:wpaper:44

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    Keywords: Field experiment; internet auctions; minimum bid increment; revenue; strategic bidding;

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