Goodwill Can Hurt: A theoretical and experimental investigation of return policies in auctions

Cadsby, CB; Du, N; Wang, R; Zhang, J

Goodwill Can Hurt: A theoretical and experimental investigation of return policies in auctions

Cadsby, CB Du, N Wang, R Zhang, J

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Publication Type:: Journal Article
Citation:: Games and Economic Behavior, 2016, 99 pp. 224 - 238
Issue Date:: 2016-09-01

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Field	Value	Language
dc.contributor.author	Cadsby, CB	en_US
dc.contributor.author	Du, N	en_US
dc.contributor.author	Wang, R	en_US
dc.contributor.author	Zhang, J https://orcid.org/0000-0002-7528-3653	en_US
dc.date.issued	2016-09-01	en_US
dc.identifier.citation	Games and Economic Behavior, 2016, 99 pp. 224 - 238	en_US
dc.identifier.issn	0899-8256	en_US
dc.identifier.uri	http://hdl.handle.net/10453/121921
dc.description.abstract	© 2016 Elsevier Inc. Will generous return policies in auctions benefit bidders? We investigate this issue using second-price common-value auctions. Theoretically, we find that the symmetric bidding equilibrium is unique unless returns are free, and when returns are free there exist multiple equilibria with different implications for sellers. Moreover, more generous return policies mitigate the winner's curse, but also push the bids higher, thus hurting bidders by eroding their surplus. In the experiment, bids increase and bidders' earnings decrease with more generous return policies as predicted. With free returns, many bidders bid above the highest possible value, subsequently returning the item regardless of value. Though consistent with equilibrium behavior, this is not optimal for sellers.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DE160100104
dc.relation.ispartof	Games and Economic Behavior	en_US
dc.relation.isbasedon	10.1016/j.geb.2016.08.002	en_US
dc.subject.classification	Economic Theory	en_US
dc.title	Goodwill Can Hurt: A theoretical and experimental investigation of return policies in auctions	en_US
dc.type	Journal Article
utslib.citation.volume	99	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	99	en_US

Abstract:

© 2016 Elsevier Inc. Will generous return policies in auctions benefit bidders? We investigate this issue using second-price common-value auctions. Theoretically, we find that the symmetric bidding equilibrium is unique unless returns are free, and when returns are free there exist multiple equilibria with different implications for sellers. Moreover, more generous return policies mitigate the winner's curse, but also push the bids higher, thus hurting bidders by eroding their surplus. In the experiment, bids increase and bidders' earnings decrease with more generous return policies as predicted. With free returns, many bidders bid above the highest possible value, subsequently returning the item regardless of value. Though consistent with equilibrium behavior, this is not optimal for sellers.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/121921