Effects of Minimum Bid Increment in Internet Auctions: Evidence from a Field Experiment

VATT Working Papers No. 44

44 Pages Posted: 11 Jul 2013

See all articles by Janne Tukiainen

Janne Tukiainen

VATT Institute for Economic Research; University of Turku - Turku School of Business - Department of Economics

Date Written: February 15, 2013

Abstract

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

Tukiainen, Janne, Effects of Minimum Bid Increment in Internet Auctions: Evidence from a Field Experiment (February 15, 2013). VATT Working Papers No. 44. Available at SSRN: https://ssrn.com/abstract=2284175 or http://dx.doi.org/10.2139/ssrn.2284175

Janne Tukiainen (Contact Author)

VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00101
Finland

University of Turku - Turku School of Business - Department of Economics ( email )

Rehtorinpellonkatu 3
Turku, 20014
Finland

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