An experimental study of auctions with a buy price under private and common values

Publisher:
Elsevier Inc
Publication Type:
Journal Article
Citation:
Games and Economic Behavior, 2011, 72 (2), pp. 558 - 573
Issue Date:
2011-01
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eBays Buy It Now format allows a seller to list an auction with a buy price at which a bidder may purchase the item immediately and end the auction. When bidders are risk averse, then theoretically a buy price can raise seller revenue when values are private (but not when values are common). We report the results of laboratory experiments designed to determine whether in practice a buy price is advantageous to the seller. We find that a suitably chosen buy price yields a substantial increase in seller revenue when values are private, and a small (but statistically insignificant) increase in revenue when values are common. In both cases a buy price reduces the variance of seller revenue. A behavioral model which incorporates the winners curse and the overweighting by bidders of their own signal explains the common value auction data better than the rational model.
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