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Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions

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  • Wang, Zhongmin

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    (Resources for the Future)

  • Xu, Minbo
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    Abstract

    Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as ?the evil stepchild of game theory and behavioral economics.?We use the complete bid and bidder history at a website to study if penny auctions can sustain excessive pro?fits over time. The overwhelming majority of new bidders lose money, but they quit quickly. A very small percentage of bidders are experienced and strategically sophisticated, but they earn substantial profi?ts. Our evidence thus suggests that penny auctions cannot sustain excessive pro?fits without attracting a revolving door of new customers who will lose money.

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    Bibliographic Info

    Paper provided by Resources For the Future in its series Discussion Papers with number dp-13-15.

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    Date of creation: 30 May 2013
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    Handle: RePEc:rff:dpaper:dp-13-15

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    Related research

    Keywords: behavioral game theory; behavioral industrial organization; auction; learning; strategic sophistication;

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    1. Avi Goldfarb & Mo Xiao, 2008. "Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets," Working Papers 08-21, NET Institute, revised Oct 2008.
    2. Robert �stling & Joseph Tao-yi Wang & Eileen Y. Chou & Colin F. Camerer, 2011. "Testing Game Theory in the Field: Swedish LUPI Lottery Games," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 1-33, August.
    3. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
    4. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    5. Brennan C. Platt & Joseph Price & Henry Tappen, 2010. "Pay-to-Bid Auctions," NBER Working Papers 15695, National Bureau of Economic Research, Inc.
    6. Harold Houba & Dinard Laan & Dirk Veldhuizen, 2011. "Endogenous entry in lowest-unique sealed-bid auctions," Theory and Decision, Springer, vol. 71(2), pages 269-295, August.
    7. Alexander L. Brown & Colin F. Camerer & Dan Lovallo, 2012. "To Review or Not to Review? Limited Strategic Thinking at the Movie Box Office," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 1-26, May.
    8. Liran Einav & Theresa Kuchler & Jonathan D. Levin & Neel Sundaresan, 2011. "Learning from Seller Experiments in Online Markets," NBER Working Papers 17385, National Bureau of Economic Research, Inc.
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