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http://ssrn.com/abstract=232111
 
 

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Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet


Alvin E. Roth


HBS Negotiations, Organizations and Markets Unit; National Bureau of Economic Research (NBER)

Axel Ockenfels


University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

June 2000

NBER Working Paper No. w7729

Abstract:     
There is a great deal of late bidding on internet second price auctions. We show that this need not result from either common value properties of the objects being sold, or irrational behavior: late bidding can occur at equilibrium even in private value auctions. The reason is that very late bids have a positive probability of not being successfully submitted, and this opens a way for bidders to implicitly collude, and avoid bidding wars, in auctions such as those run by eBay, which have a fixed end time. A natural experiment is available because the auctions on Amazon, while operating under otherwise similar rules, do not have a fixed end time, but continue if necessary past the scheduled end time until ten minutes have passed without a bid. The strategic differences in the auction rules are reflected in the auction data by significantly more late bidding on eBay than on Amazon. Futhermore, more experienced bidders on eBay submit late bids more often than do less experienced bidders, while the effect of experience on Amazon goes in the opposite direction. On eBay, there is also more late bidding for antiques than for computers. We also find scale independence in the distribution over time of bidders' last bids, of a form strikingly similar to the deadline effect' noted in bargaining: last bids are distributed according to a power law. The evidence suggests that multiple causes contribute to late bidding, with strategic issues related to the rules about ending the auction playing an important role.

Number of Pages in PDF File: 49

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Date posted: June 12, 2000  

Suggested Citation

Roth, Alvin E. and Ockenfels, Axel, Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet (June 2000). NBER Working Paper No. w7729. Available at SSRN: http://ssrn.com/abstract=232111

Contact Information

Alvin E. Roth (Contact Author)
HBS Negotiations, Organizations and Markets Unit ( email )
Soldiers Field
Boston, MA 02163
United States
617-495-5447 (Phone)
617-496-7379 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Axel Ockenfels
University of Cologne - Department of Economics ( email )
Albertus Magnus Platz
Cologne 50923
Germany
HOME PAGE: http://ockenfels.uni-koeln.de/
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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