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Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions

Author

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  • Wang, Zhongmin

    () (Resources for the Future)

  • Xu, Minbo

Abstract

Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as ?the evil stepchild of game theory and behavioral economics.?We use the complete bid and bidder history at a website to study if penny auctions can sustain excessive pro?fits over time. The overwhelming majority of new bidders lose money, but they quit quickly. A very small percentage of bidders are experienced and strategically sophisticated, but they earn substantial profi?ts. Our evidence thus suggests that penny auctions cannot sustain excessive pro?fits without attracting a revolving door of new customers who will lose money.

Suggested Citation

  • Wang, Zhongmin & Xu, Minbo, 2013. "Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions," Discussion Papers dp-13-15, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-13-15
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-13-15.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    behavioral game theory; behavioral industrial organization; auction; learning; strategic sophistication;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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