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The effect of surcharge on price in online auctions

Author

Listed:
  • Ernan Haruvy

    (McGill University)

  • Boram Lim

    (University of Kansas)

  • Peter T. L. Popkowski Leszczyc

    (University of Queensland)

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.

Suggested Citation

  • Ernan Haruvy & Boram Lim & Peter T. L. Popkowski Leszczyc, 2023. "The effect of surcharge on price in online auctions," Electronic Commerce Research, Springer, vol. 23(2), pages 1161-1182, June.
    • Handle: RePEc:spr:elcore:v:23:y:2023:i:2:d:10.1007_s10660-021-09508-6
    DOI: 10.1007/s10660-021-09508-6
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    References listed on IDEAS

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