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The effect of surcharge on price in online auctions

Abstract

We examine auctions for identical items with different surcharges. We find an inverted U-shape relationship between the surcharge amount and the price premium for the auction with the higher surcharge. To explain this pattern, we fit an empirical model with a two-stage process for the consideration of surcharges. In the first stage, consumers choose between two identical auctions, and in the second stage, they determine whether to place a bid. Using a novel online auction dataset that includes search and bids, we find the determinants of both search and bid, and map the relationship between surcharge and expected revenue. We note that the optimal surcharge changes inversely with bidders’ level of experience and the expected number of bidders. The findings show conditions under which consumers fail to accurately process price and surcharge differences.

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Notes

  1. 1.

    In mapping perceptions, one must account for valuation-related factors, including expectations about product composition [2], the posted price’s position relative to the consumer’s reference price [24], perceived fairness [22], and the number of surcharges [25], and seller reputation [6].

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Acknowledgements

The authors acknowledge support from Grant No. 435-2016-0250 from the Social Sciences and Humanities Research Council of Canada.

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Correspondence to Ernan Haruvy.

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Haruvy, E., Lim, B. & Leszczyc, P.T.L.P. The effect of surcharge on price in online auctions. Electron Commer Res (2021). https://doi.org/10.1007/s10660-021-09508-6

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Keywords

  • Partitioned pricing
  • Surcharges
  • Internet auctions
  • Field study