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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Ronald Peeters & Martin Strobel & Dries Vermeulen & Markus Walzl, 2016. "The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions," Games, MDPI, vol. 7(1), pages 1-19, March.
    • Handle: RePEc:gam:jgames:v:7:y:2016:i:1:p:8-:d:64825
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    References listed on IDEAS

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    Cited by:

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    3. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2021. "How do sellers benefit from Buy-It-Now prices in eBay auctions?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 189-205.

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    More about this item

    Keywords

    buy-options; online auctions; experiments; anchoring; C72; C91; D44; D82;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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