Shill Bidding, Reserve Price and Seller’s Revenue

43 Pages Posted: 29 Nov 2018

See all articles by Kong-Pin Chen

Kong-Pin Chen

Academia Sinica - Research Center for Humanities and Social Sciences; National Taiwan University - Department of Economics

T.P. Liang

National Sun Yat-sen University - College of Management

Ted Chang

Academia Sinica - Research Center for Humanities and Social Science

Yi-chun Liu

Taiwan Semiconductor Manufacturing Company Ltd. (TSMC)

Ya-Ting Yu

Graduate Institute of Industrial Economics

Date Written: September 26, 2018

Abstract

Starting with a low reserve price has been shown in some empirical literature to be surprisingly effective in online auctions, in that it generates greater expected revenue than a high reserve price which is consistent with theory. However, literature has also pointed out that sellers who practice shill bidding also start with a low reserve price. This raises the question of whether this empirical result is only an illusion mainly caused by shill bidding. Using data from eBay Motors, this paper empirically re-investigates the effect of reserve price on the seller’s sale rate, transaction price and expected revenue, taking into account the impact of shill bidding. We first construct a shill score for each listing, then estimate the trade probability and transaction price equations, while controlling for shill bidding. We find that shill bidding increases transaction price, a result consistent with its purpose. Moreover, increasing the reserve price increases transaction price but reduces trade probability.

Despite this, reducing the reserve price still results in higher expected revenue. Finally, our empirical result rejects a recent theoretical prediction that shill bids mainly occur as last-minute bids.

Keywords: shill bid, reserve price, online auctions, eBay, eBay motors

JEL Classification: L81, D44, D82

Suggested Citation

Chen, Kong-Pin and Liang, T.P. and Chang, Ted and Liu, Yi-chun and Yu, Ya-Ting, Shill Bidding, Reserve Price and Seller’s Revenue (September 26, 2018). Available at SSRN: https://ssrn.com/abstract=3279292 or http://dx.doi.org/10.2139/ssrn.3279292

Kong-Pin Chen (Contact Author)

Academia Sinica - Research Center for Humanities and Social Sciences ( email )

RCHSS
Academia Sinica
Nankang, Taipei, 11529
Taiwan
886 2 2789 8160 (Phone)
886 2 2785 4160 (Fax)

HOME PAGE: http://idv.sinica.edu.tw/kongpin/

National Taiwan University - Department of Economics

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

T.P. Liang

National Sun Yat-sen University - College of Management ( email )

Taiwan

Ted Chang

Academia Sinica - Research Center for Humanities and Social Science ( email )

128 Academia Road
Taipei
Taiwan

Yi-chun Liu

Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) ( email )

8, Li-Hsin Rd VI
Hsinchu Science Park
Hsinchu, 300-78
Taiwan

Ya-Ting Yu

Graduate Institute of Industrial Economics ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

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