WTP and WTA in competitive and non-competitive environments (original) (raw)

Economics, Psychology, and Social Dynamics of Consumer Bidding in Auctions

Marketing Letters, 2005

With increasing numbers of consumers in auction marketplaces, we highlight some recent approaches that bring additional economic, social, and psychological factors to bear on existing economic theory to better understand * This paper is based on the special session at the 6th Triennial Invitational Choice Symposium, University of Colorado Boulder, June 2004 (co-chaired by the first two authors). † Corresponding author.

Should Sellers Prefer Auctions? A Laboratory Comparison of Auctions and Sequential Mechanisms

Management Science, 2014

When bidders incur a cost to learn their valuations, bidder entry can impact auction performance. Two common selling mechanisms in this environment are an English auction and a sequential bidding process. Theoretically, sellers should prefer the auction, because it generates higher expected revenues, whereas bidders should prefer the sequential mechanism, because it generates higher expected bidder profits. We compare the two mechanisms in a controlled laboratory environment, varying the entry cost, and find that, contrary to the theoretical predictions, average seller revenues tend to be higher under the sequential mechanism, whereas average bidder profits are approximately the same. We identify three systematic behavioral deviations from the theoretical model: (1) in the auction, bidders do not enter 100% of the time; (2) in the sequential mechanism, bidders do not set preemptive bids according to the predicted threshold strategy; and (3) subsequent bidders tend to overenter in re...

Bidding Behavior in Descending and Ascending Auctions

Marketing Science, 2012

We report two experiments examining how a set of motivational, cognitive and situational factors drives consumers' value construction and bidding in auctions involving real products. A motivational antecedent, bidder goals (winning the item versus acquiring it at a price consistent with their value) is examined along with two cognitive factors (a) value precision (operationally, the width of a provided price range) and (b) value salience (whether or not subjects' value for the item is pre-measured). The experiments involve a descending and an ascending auction respectively, each embedding manipulations of a situational variable (deliberation time available to the bidder at each price step). The results show that in both auction formats, winning focus bidders bid higher than value focus bidders. However, the effect is attenuated when values are more precise and/or salient. Deliberation time effects differ across auction formats. In descending auctions, a longer time elicits higher bids from winning focus bidders but not from value focus bidders. In ascending auctions, a longer time lowers bids from value focus bidders, but not from winning focus bidders. We compare these effects across the two studies to explore the behavioral underpinnings of consumer value formation and bidding in descending and ascending auctions.

Understanding Overbidding in Second Price Auctions: An Experimental Study

The Economic Journal, 2008

This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about oppoents' value has no strategetic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the \strength" (i.e. the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by \spite" motives or by the \joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modi ed \joy of winning" hypothesis than with the \spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also nd that bidder heterogeneity plays an important role in explaining their bidding behavior.

Theory and individual behavior of first-price auctions

Journal of Risk and Uncertainty, 1988

First-price auction theory is extended to the case of heterogeneous bidders characterized by Mparameter log-concave utility functions. This model, and its specific two-parameter constant relative risk averse special case, is generally supported by the results of 47 experiments. The one-parameter special case that comprises most of the theoretical literature is not supported by the experiments. One anomaly for the two-parameter model is that too m~ny of the subjects exhibit positive (or negative) intercepts in their linear estimated bid functions. Accordingly, we develop a specific three-parameter model, which introduces a utility of winning, and a threshold utility of surplus. The new model, tested directly by introducing lump-sum payments or charges for winning, is not falsified by the new experiments.

Bidding behavior in asymmetric auctions: An experimental study

European Economic Review, 2005

We review an asymmetric auction experiment. Based on Plum (1992) private valuations of the two bidders are independently drawn from distinct but commonly known distributions, one of which stochastically dominating the other. We test the qualitative properties of that model of asymmetric auctions, in particular whether the weak bidder behaves more aggressively than the strong and then test bidders' preference for …rst-vs. second-price auctions.

An experimental evaluation of bidders' behavior in ad auctions

Proceedings of the 23rd international conference on World wide web - WWW '14, 2014

We performed controlled experiments of human participants in a continuous sequence of ad auctions, similar to those used by Internet companies. The goal of the research was to understand users' strategies in making bids. We studied the behavior under two auction types: (1) the Generalized Second-Price (GSP) auction and (2) the Vickrey-Clarke-Groves (VCG) payment rule, and manipulated also the participants' knowledge conditions: (1) explicitly given valuations and (2) payoff information from which valuations could be deduced. We found several interesting behaviors, among them are:

Vickrey vs. eBay: Why Second-Price Sealed-Bid Auctions Lead to More Realistic Price-Demand Functions

International Journal of Electronic Commerce, 2010

Knowledge of consumers' willingness-to-pay (WtP) is critical for marketing managers when designing optimal pricing policies. the large-scale applicability, reliability, and validity of Vickrey auctions as an incentive-compatible method for eliciting WtP in a real-world setting were tested empirically. the results of 6,548 sealed bids in 28 auctions of costly durables on a popular auction Web site show that regular on-line shoppers have little problem understanding and applying the Vickrey auction bidding strategy. As a result, Vickrey auctions can easily produce a reliable and valid distribution of WtP based on several thousand consumers. A comparison of Vickrey auctions with the more commonly used English or ebay auctions shows, both conceptually and empirically, that the latter formats do not fully reflect the complete range of potential customers' WtP and, therefore, lead to systematic overestimation of price-demand functions. In contrast, WtP information elicited through Vickrey auctions is undistorted by strategic behavior such as bid-sniping and incorporates the full range of WtP information, suggesting that it is better suited for estimating realistic price-demand functions for market research purposes.