Working Paper: NBER ID: w15695
Authors: Brennan C. Platt; Joseph Price; Henry Tappen
Abstract: We analyze a new auction format in which bidders pay a fee each time they increase the auction price. Bidding fees are the primary source of revenue for the seller, but produce the same expected revenue as standard auctions. Our model predicts a particular distribution of ending prices, which we test against observed auction data. Our model fits the data well for over three-fourths of routinely auctioned items. The notable exceptions are video game paraphernalia, which show more aggressive bidding and higher expected revenue. By incorporating mild risk-loving preferences in the model, we explain nearly all of the auctions.
Keywords: Pay-to-bid auctions; Bidding behavior; Auction revenue; Risk preferences
JEL Codes: D44; D53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction format (D44) | revenue outcomes (H27) |
| item type (video games) (C70) | bidding behavior (D44) |
| bidding behavior (D44) | revenue outcomes (H27) |
| risk preferences (D81) | bidding behavior (D44) |
| auction format (D44) | bidder behavior (D44) |