Effects of Minimum Bid Increment in Internet Auctions: Evidence from a Field Experiment
VATT Working Papers No. 44
44 Pages Posted: 11 Jul 2013
Date Written: February 15, 2013
I study the role of minimum bid increments (MBI) in internet auctions using field experiment data. I sell identical gift cards while varying the MBI. Internet auctions have typically been viewed as second-price, implying truthful bidding. However, due to the presence of the MBI, equilibrium bidding behavior involves bid-shading. I test between truthful bidding and equilibrium bidding. Truthful bidding is rejected. Bidders conduct bid-shading in a pattern consistent with equilibrium bidding. I also report that the revenue maximizing level for the MBI is higher than zero and the eBay level is close to optimal. Moreover, a high MBI inefficiently limits entry.
Keywords: field experiment, internet auctions, minimum bid increment, revenue, strategic bidding
JEL Classification: D440, C930, C720, C520, L810
Suggested Citation: Suggested Citation