Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on Ebay

45 Pages Posted: 5 Mar 2008

See all articles by Gary E. Bolton

Gary E. Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems

Axel Ockenfels

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

Date Written: March 1, 2008

Abstract

We conducted a controlled field experiment on eBay and examined to what extent both social and competitive laboratory behavior is robust to institutionally complex real world markets with experienced traders, who selected themselves into these markets. EBay's natural trading system provides bridges between lab and field environment that can be exploited to explore differences in behavior in the two environments. We find that many sellers do not make use of their commitment power as predicted by standard theories of both selfish and social behavior. However, a concern for equity strongly affects outcomes and reputation building in bilateral bargaining, while buyer competition effectively masks this concern and robustly yields equilibrium outcomes. The dichotomy of behaviors mirrors observations in laboratory research. Furthermore, we find that behavioral patterns in the field experiment mirror fully naturally occurring trading patterns in the market.

Keywords: eBay, auctions, behavioral economics, trust, market design

JEL Classification: C93, D44

Suggested Citation

Bolton, Gary Eugene and Ockenfels, Axel, Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on Ebay (March 1, 2008). CESifo Working Paper Series No. 2241, Available at SSRN: https://ssrn.com/abstract=1102968

Gary Eugene Bolton (Contact Author)

Pennsylvania State University - Department of Supply Chain & Information Systems ( email )

Dept. of Supply Chain & Information Systems
University Park, PA 16802-3306
United States
814-865-0611 (Phone)
814-863-2381 (Fax)

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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