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Charitable Motives and Bidding in Charity Auctions

  • Peter T. L. Popkowski Leszczyc

    ()

    (Department of Marketing Economic Analyses and Law, School of Business, University of Alberta, Edmonton, Alberta T6G 2R6, Canada)

  • Michael H. Rothkopf (deceased)

    (Formerly at the Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

Research on bidding in auctions has generally relied on the assumption of self-interested bidders. This work relaxes that assumption in the context of charity auctions. Because understanding charitable motives has important implications for auction design and charities' fundraising strategies, this study investigates bidders' specific types of charitable motives and the strength of these motives. We carry out three controlled field experiments consisting of real-life auctions conducted on a local Internet auction site. We use a novel design in which we simultaneously run charity and noncharity auctions for identical products and vary the percentage donated to charity. Results show that auctions with proceeds donated to charity lead to significantly higher selling prices, a result due to a higher bidding by bidders with charitable motives rather than to increased bidder entry. We also find that increased prices only occur when the charitable donation is a percentage of the auction revenue, and that a fixed charitable donation associated with each auction has no effect on prices. Furthermore, we find that prices are increasing in the percentage donated to charity. We find considerable support for a model of voluntary shill-like bidding, where charitable bidders try to increase proceeds in charity auctions. We also find that auctions with 25% of revenue donated to charity had higher net revenue than noncharity auctions. Hence, companies may be able to use charity auctions as part of a corporate social responsibility strategy and at the same time increase profitability even though they donate part of the proceeds to charity.

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File URL: http://dx.doi.org/10.1287/mnsc.1090.1120
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 56 (2010)
Issue (Month): 3 (March)
Pages: 399-413

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Handle: RePEc:inm:ormnsc:v:56:y:2010:i:3:p:399-413
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  15. Popkowski Leszczyc, Peter T.L. & Pracejus, John W. & Shen, Yingtao, 2008. "Why more can be less: An inference-based explanation for hyper-subadditivity in bundle valuation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(2), pages 233-246, March.
  16. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  17. Maxim Engers & Brian McManus, 2007. "Charity Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 953-994, 08.
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  19. Min Ding & Jehoshua Eliashberg & Joel Huber & Ritesh Saini, 2005. "Emotional Bidders---An Analytical and Experimental Examination of Consumers' Behavior in a Priceline-Like Reverse Auction," Management Science, INFORMS, vol. 51(3), pages 352-364, March.
  20. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  21. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
  22. Haruvy, Ernan & Popkowski Leszczyc, Peter T. L., 2010. "Internet Auctions," Foundations and Trends(R) in Marketing, now publishers, vol. 4(1), pages 1-75, March.
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