The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions

Ronald Peeters; Martin Strobel; Dries Vermeulen; Markus Walzl

doi:10.3390/g7010008

Games (Mar 2016)

The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions

Ronald Peeters,
Martin Strobel,
Dries Vermeulen,
Markus Walzl

Affiliations

Ronald Peeters: Department of Economics, Maastricht University, P.O. Box 616, Maastricht 6200 MD, The Netherlands
Martin Strobel: Department of Economics, Maastricht University, P.O. Box 616, Maastricht 6200 MD, The Netherlands
Dries Vermeulen: Department of Quantitative Economics, Maastricht University, P.O. Box 616, Maastricht 6200 MD, The Netherlands
Markus Walzl: Department of Economics, Innsbruck University, Universitätsstr. 15, Innsbruck A-6020, Austria

DOI: https://doi.org/10.3390/g7010008
Journal volume & issue: Vol. 7, no. 1
p. 8

Abstract

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With a laboratory experiment, we study the impact of buy-options and the corresponding buy-price on revenues and bidding behavior in (online) proxy-auctions with independent private valuations. We show that temporary buy-options may reduce revenues for two reasons: At low buy-prices, the application of the buy-option avoids revenue-enhancing bidding; at high buy-prices, bidders are reluctant to bid above the option price (even though the option is no longer available once an auction has started). The latter suggests a particular type of anchoring, where bidders use the buy-price to update their expectations about the strengths of their opponents.

Published in Games

ISSN: 2073-4336 (Online)
Publisher: MDPI AG
Country of publisher: Switzerland
LCC subjects: Technology; Social Sciences
Website: http://www.mdpi.com/journal/games/

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