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Commentary--Do Bids Equal Values on eBay?

Author

Listed:
  • Ali Hortaçsu

    (Department of Economics, University of Chicago, Chicago, Illinois 60637; and National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Eric R. Nielsen

    (Department of Economics, University of Chicago, Chicago, Illinois 60637)

Abstract

We argue that the Zeithammer and Adams paper [Zeithammer, R., C. Adams. 2010. The sealed-bid abstraction in online auctions. Marketing Sci. 29(6) 964-987] successfully documents consistent patterns in eBay bidding data that cast doubt on the common assumption that bidders in such auctions follow a "bid = value" strategy. These anomalies lend support to the authors' alternative model in which some bidders bid reactively and consequently bid below their valuation most of the time. The consistency of the authors' findings as well as the ability of their alternative explanation to account for all of their test results lends great support to their thesis. However, we think that several of their empirical tests examine ancillary assumptions about bidder behavior and do not test the bid = value assumption directly. Furthermore, although their reduced-form model incorporating "reactive" bidders is a good first attempt at expanding the canonical framework, we worry that their counterfactual pricing analysis using the reactive model is suspect because the parameters they estimate are not structural. Overall, the Zeithammer and Adams paper is a carefully argued critique of empirical methods used to study online auctions and provides valuable ideas to improve on these methods.

Suggested Citation

  • Ali Hortaçsu & Eric R. Nielsen, 2010. "Commentary--Do Bids Equal Values on eBay?," Marketing Science, INFORMS, vol. 29(6), pages 994-997, 11-12.
  • Handle: RePEc:inm:ormksc:v:29:y:2010:i:6:p:994-997
    DOI: 10.1287/mksc.1100.0593
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    File URL: http://dx.doi.org/10.1287/mksc.1100.0593
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    References listed on IDEAS

    as
    1. Ostrovsky, Michael & Schwarz, Michael, 2009. "Reserve Prices in Internet Advertising Auctions: A Field Experiment," Research Papers 2054, Stanford University, Graduate School of Business.
    2. Engelberg, Joseph & Williams, Jared, 2009. "eBay's proxy bidding: A license to shill," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 509-526, October.
    3. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    Cited by:

    1. Ernan Haruvy & Peter T. L. Popkowski Leszczyc, 2015. "The Loser’s Bliss in Auctions with Price Externality," Games, MDPI, Open Access Journal, vol. 6(3), pages 1-23, July.
    2. Janne Tukiainen, 2017. "Effects of Minimum Bid Increments in Internet Auctions: Evidence from a Field Experiment," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 597-622, September.
    3. Robert Zeithammer & Christopher Adams, 2010. "Rejoinder--Causes and Implications of Some Bidders Not Conforming to the Sealed-Bid Abstraction," Marketing Science, INFORMS, vol. 29(6), pages 998-1000, 11-12.
    4. Platt, Brennan C., 2017. "Inferring ascending auction participation from observed bidders," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 65-88.
    5. Joachim Freyberger & Bradley J. Larsen, 2017. "Identification in Ascending Auctions, with an Application to Digital Rights Management," NBER Working Papers 23569, National Bureau of Economic Research, Inc.

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