Marketing Papers

Document Type

Technical Report

Date of this Version

9-2008

Publication Source

Management Science

Volume

54

Issue

9

Start Page

1624

Last Page

1637

DOI

10.1287/mnsc.1080.0881

Abstract

People often observe others' decisions before deciding themselves. Using eBay data for DVD auctions we explore the consequences of neglecting nonsalient information when making such inferences. We show that bidders herd into auctions with more existing bids, even if these are a signal of no-longer-available lower starting prices rather than of higher quality. Bidders bidding a given dollar amount are less likely to win low starting price auctions, and pay more for them when they do win. Experienced bidders are less likely to bid on low starting price auctions. Remarkably, the seller side of the market is in equilibrium, because expected revenues are nearly identical for high and low starting prices.

Copyright/Permission Statement

Originally published in Management Science © 2008 INFORMS

This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mnsc.1080.0881

Keywords

herding, auctions, biases, rationality, industrial organization

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Date Posted: 15 June 2018

This document has been peer reviewed.