Abstract
On the basis of the bidding history of a panel of new eBay bidders, we examine the impact of different types of experiences on bidding behavior evolution. Accounting for unobserved bidder heterogeneity, the results indicate that losing experiences make the bidders’ bidding behavior evolve toward the normative predictions of auction theory, in that they submit fewer bids and bid later. Winning experiences, however, do not have such an effect. Moreover, the experience effect pertains to the bidder’s entire previous bidding experience regardless of product categories. We also assess the potential bias introduced by using feedback ratings (compared with actual participation) as experience measures.
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Notes
In private-value auctions, bidders’ valuations are assumed to be independent. In contrast, a common component affects all bidders’ valuations (e.g., Wilson 1977) in common value auctions. Reasons for such a common component include “some prestige value of owning and might be admired by others, or items that may be resold later at an unknown price” (Milgrom and Weber 1982, p. 1095; Wilcox 2000, p. 369).
If an auction did not end with a sale, the tracked bidder is considered to have lost the auction because he or she did not win.
Because the highest valuation of the product is not revealed, due to auction rules, we cannot expect it to influence bidders’ behavior in general. We use the winning price instead, because it is observable to bidders (Park and Bradlow 2005).
We do not include the number of bids together with the number of unique bidders, because they are highly correlated (Pearson r = 0.768, p = 0.000).
We caution that such coding is based on a simple heuristic, following the precedent in previous literature and our judgment. Private- and common-value need not necessarily be dichotomous, and an affiliated-value framework would include both paradigms (e.g., Laffont and Vuong 1996). Klemperer (1998) shows that small asymmetries among bidders in common value auctions may lead to auctions with almost common values. We thank an anonymous reviewer for pointing this out.
Because we use Bayesian estimation, the parameter estimates appear in distributional form. We report the means, standard deviations, and 2.5–97.5% confidence intervals (CI) for each parameter, unless otherwise noted. A parameter is statistically significant at 5% if the 2.5–97.5% CI falls completely in the positive or negative domain and does not include 0.
We thank an anonymous reviewer for this suggestion.
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Wang, X., Hu, Y. The effect of experience on Internet auction bidding dynamics. Mark Lett 20, 245–261 (2009). https://doi.org/10.1007/s11002-009-9068-3
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DOI: https://doi.org/10.1007/s11002-009-9068-3