The Effects of Competitive Reserve Prices in Online Auctions
Forthcoming in European Journal of Marketing
33 Pages Posted: 28 Feb 2018
Date Written: February 16, 2018
Purpose: This paper investigates how competition among online auction sellers influences the setting of both open and secret reserve prices, thereby affecting auction outcome.
Design/methodology/approach: Using a dataset collected from eBay consisting of 787 identical product auctions the authors propose three empirical models. Model one simultaneously estimates the effects of auction competition on a seller’s own open and secret reserve price strategies; model two estimates the effects of auction competition on bidder participation; and model three estimates the direct and indirect effects of auction competition on selling price. Findings: Competition among sellers is central to shaping sellers’ reserve price strategies. When there are more concurrent auctions for identical items, sellers tend to specify a low open reserve and are less likely to set a secret reserve. Sellers are strongly influenced by competitors’ reserve price strategies, and tend to follow competition. Finally, auction competition and competitive reserve price strategies influence both bidder entry and selling prices.
Practical implications: This research has important implications for both sellers and bidders. It highlights the importance for sellers to adapt their reserve price strategies in light of their competitors’ reserve price strategies and offers implications for bidders regarding auction selection. An auction with low starting bid does not necessarily lead to a lower selling price as it attracts more bidders.
Originality/Value: This paper focuses on competition among auction sellers, whereas previous literature has focused on competition among bidders. This paper is the first to study the impact of competing reserve prices in auctions.
Keywords: Internet auctions, Competitive reserve prices, Auction competition, Starting bid, Secret reserve
JEL Classification: M31, D44, D4
Suggested Citation: Suggested Citation