Designing Experimental Auctions For Marketing Research: Effect Of Values, Distributions, And Mechanisms On Incentives For Truthful Bidding
Accurately estimating consumer demand for new products is an arduous task made even more difficult by the fact that individuals tend to overstate the amount they are willing to pay for new goods when asked hypothetical questions. Despite their appeal in eliminating hypothetical bias, marketers have been slow to adopt experimental auctions as a standard tool in pre-test market research. One issue that has slowed adoption of the methodology is the proliferation of auction mechanisms and the lack of clear guidance in choosing between mechanisms. In this paper, we provide insight into the theoretical properties of two incentive compatible value elicitation mechanisms, the BDM and Vickrey 2nd price auction, such that practitioners can make more informed decisions in designing experimental auctions to determine consumer willingness-to-pay. In particular, we draw attention to the shapes of the payoff functions and show in a simulation that the two mechanisms differ with respect to the expected cost of deviating from truthful bidding. We show that incentives for truthful bidding depend on the distribution of competing bidders' values and/or prices and individuals' true values for a good. The simulation indicates the 2nd price auction punishes deviations from truthful bidding more severely for high value individuals than the BDM mechanism. These results are confirmed by an experimental study, where we find more accurate bidding for high-value individuals in the 2nd price auction as compared to the BDM. Our results also indicate that when implementing the BDM mechanism, the greatest incentives for truthful value revelation are created when the random price generator is based on a normal distribution centered on an individual's expected true value.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huffman, Wallace & Rousu, M. & Shogren, Jason F. & Tegene, Abebayehu, 2003.
"The Public Good Value of Information from Agribusiness on Genetically Modified Foods,"
Staff General Research Papers
12257, Iowa State University, Department of Economics.
- Wallace E. Huffman & Matthew Rousu & Jason F. Shogren & Abebayehu Tegene, 2003. "The Public Good Value of Information from Agribusinesses on Genetically Modified Foods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1309-1315.
- John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
- Charles Noussair & StÈphane Robin & Bernard Ruffieux, 2004. "Do Consumers Really Refuse To Buy Genetically Modified Food?," Economic Journal, Royal Economic Society, vol. 114(492), pages 102-120, 01.
- Lusk, Jayson L., 2003. "Using Experimental Auctions for Marketing Applications: A Discussion," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(02), August.
- Noussair, C. & Robin, S. & Ruffieux, B., 2001.
"Do Consumers Not Care about Biotech Foods or Do They Just Not Read the Labels?,"
Purdue University Economics Working Papers
1142, Purdue University, Department of Economics.
- Noussair, Charles & Robin, Stephane & Ruffieux, Bernard, 2002. "Do consumers not care about biotech foods or do they just not read the labels?," Economics Letters, Elsevier, vol. 75(1), pages 47-53, March.
- Fox, John A. & Hayes, Dermot J. & Shogren, Jason F., 2002.
"Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions,"
Staff General Research Papers
5207, Iowa State University, Department of Economics.
- Fox, John A & Hayes, Dermot J & Shogren, Jason F, 2002. " Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 75-95, January.
- Ty Feldkamp & Ted C. Schroeder, 2004.
"Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 86(2), pages 389-405.
- Jayson Lusk & Ted Schroeder & Ty Feldkamp, 2004. "Experimental auction procedure: Impact on valuation of quality differentiated goods," Artefactual Field Experiments 00097, The Field Experiments Website.
- Lusk,Jayson L. & Shogren,Jason F., 2007.
Cambridge University Press, number 9780521671248.
- repec:feb:artefa:0069 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:ags:aaea04:20202. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.