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Pay-to-Bid Auctions

Author

Listed:
  • Brennan C. Platt
  • Joseph Price
  • Henry Tappen

Abstract

We analyze a new auction format in which bidders pay a fee each time they increase the auction price. Bidding fees are the primary source of revenue for the seller, but produce the same expected revenue as standard auctions. Our model predicts a particular distribution of ending prices, which we test against observed auction data. Our model fits the data well for over three-fourths of routinely auctioned items. The notable exceptions are video game paraphernalia, which show more aggressive bidding and higher expected revenue. By incorporating mild risk-loving preferences in the model, we explain nearly all of the auctions.

Suggested Citation

  • Brennan C. Platt & Joseph Price & Henry Tappen, 2010. "Pay-to-Bid Auctions," NBER Working Papers 15695, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15695
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    References listed on IDEAS

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    Cited by:

    1. Paan Jindapon & Christopher Whaley, 2015. "Risk lovers and the rent over-investment puzzle," Public Choice, Springer, vol. 164(1), pages 87-101, July.
    2. Hinnosaar, Toomas, 2016. "Penny auctions," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 59-87.
    3. Gallice Andrea, 2016. "Price Reveal Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 485-514, June.
    4. Marco Scarsini & Eilon Solan & Nicolas Vieille, 2010. "Lowest Unique Bid Auctions," Papers 1007.4264, arXiv.org.
    5. Matthew W. McCarter & Abel M. Winn, 2013. "When the Economics of a Decision Matters More than the Psychology of the Decision: Understanding the Economic Significance of Auction Fever," Working Papers 13-19, Chapman University, Economic Science Institute.
    6. Andrea Gallice & Giuseppe Sorrenti, 2022. "Curious about the price? Consumers’ behavior in price reveal auctions," Applied Economics Letters, Taylor & Francis Journals, vol. 29(9), pages 831-834, May.
    7. Wang, Zhongmin & Xu, Minbo, 2013. "Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions," RFF Working Paper Series dp-13-15, Resources for the Future.
    8. Andrea Gallice, 2010. "Price Reveal Auctions on the Internet," Carlo Alberto Notebooks 147, Collegio Carlo Alberto.
    9. Philipp Herrmann & Dennis O. Kundisch & Mohammad S. Rahman, 2013. "To Bid or Not to Bid Aggressively? An Empirical Study," Working Papers Dissertations 08, Paderborn University, Faculty of Business Administration and Economics.
    10. Zhongmin Wang & Minbo Xu, 2016. "Empirical Evidence on Competition and Revenue in an All-Pay Contest," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(3), pages 429-448, November.
    11. Miroslav Svoboda & Petr Bocák, 2013. "Curiosity of Pay-Per-Bid Auctions: Evidence from Bonus.cz Auction Site," Prague Economic Papers, Prague University of Economics and Business, vol. 2013(3), pages 418-432.
    12. Toomas Hinnosaar, 2013. "Penny Auctions are Unpredictable," Carlo Alberto Notebooks 305, Collegio Carlo Alberto.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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