Commentary--Do Bids Equal Values on eBay?
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.
Volume (Year): 29 (2010)
Issue (Month): 6 (11-12)
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- Paul Milgrom & Robert J. Weber, 1981.
"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Ostrovsky, Michael & Schwarz, Michael, 2009. "Reserve Prices in Internet Advertising Auctions: A Field Experiment," Research Papers 2054, Stanford University, Graduate School of Business.
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