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Pay-to-Bid Auctions

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15695.

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Date of creation: Jan 2010
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Publication status: published as Brennan Platt, Joseph Price, Henry Tappen (2013). Pay-to-Bid Auctions. Forthcoming in Management Science.
Handle: RePEc:nbr:nberwo:15695

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  1. Arieh Gavious & Benny Moldovanu & Aner Sela, 2002. "Bid Costs and Endogenous Bid Caps," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 709-722, Winter.
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  6. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
  7. Gregory, Nathaniel, 1980. "Relative Wealth and Risk Taking: A Short Note on the Friedman-Savage Utility Function," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1226-30, December.
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Cited by:
  1. Wang, Zhongmin & Xu, Minbo, 2013. "Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions," Discussion Papers dp-13-15, Resources For the Future.
  2. Andrea Gallice, 2010. "Price Reveal Auctions on the Internet," Carlo Alberto Notebooks 147, Collegio Carlo Alberto.
  3. Miroslav Svoboda & Petr Bocák, 2013. "Curiosity of Pay-Per-Bid Auctions: Evidence from Bonus.cz Auction Site," Prague Economic Papers, University of Economics, Prague, vol. 2013(3), pages 418-432.
  4. Marco Scarsini & Eilon Solan & Nicolas Vieille, 2010. "Lowest Unique Bid Auctions," Papers 1007.4264, arXiv.org.
  5. Toomas Hinnosaar, 2013. "Penny Auctions are Unpredictable," Carlo Alberto Notebooks 305, Collegio Carlo Alberto.
  6. 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.

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