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The Impact of Perceived Prices on Willingness to Pay in Experimental Auctions

Author

Listed:
  • Colson Gregory

    (University of Georgia)

  • Corrigan Jay R

    (Kenyon College)

  • Rousu Matthew C.

    (Susquehanna University)

Abstract

While experimental auctions are demand revealing in theory, recent studies question whether bids fully reflect willingness to pay due to the presence of outside substitutes available in conventional markets. The presence of outside substitutes implies that bids should theoretically be censored from above at the market price. While bid price censoring has been recognized in the literature, previous research has not examined the specific dollar level at which bids should be censoredthe price at which a product can actually be purchased outside of the experimental auction or the price at which participants believe it can be purchased. We provide evidence from a field interview and experimental auction that individual-specific perceived prices differ from actual market prices. The dichotomy between perceived and true market prices is shown to have significant implications for econometric analysis of bid price data.

Suggested Citation

  • Colson Gregory & Corrigan Jay R & Rousu Matthew C., 2010. "The Impact of Perceived Prices on Willingness to Pay in Experimental Auctions," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 1-13, November.
  • Handle: RePEc:bpj:bjafio:v:8:y:2010:i:1:n:9
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    References listed on IDEAS

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    1. Noussair, Charles & Robin, Stephane & Ruffieux, Bernard, 2004. "Revealing consumers' willingness-to-pay: A comparison of the BDM mechanism and the Vickrey auction," Journal of Economic Psychology, Elsevier, vol. 25(6), pages 725-741, December.
    2. Thomas Zuehlke, 2003. "Estimation of a Tobit model with unknown censoring threshold," Applied Economics, Taylor & Francis Journals, vol. 35(10), pages 1163-1169.
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    Cited by:

    1. Tyler J. Klain & Jayson L. Lusk & Glynn T. Tonsor & Ted C. Schroeder, 2014. "An experimental approach to valuing information," Agricultural Economics, International Association of Agricultural Economists, vol. 45(5), pages 635-648, September.

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