What Attracts Bidders to Online Auctions and What is Their Incremental Price Impact?

38 Pages Posted: 15 Sep 2004

See all articles by Michaël Dewally

Michaël Dewally

Towson University - Department of Finance

Louis H. Ederington

University of Oklahoma - Division of Finance

Date Written: September 2004

Abstract

Based on data from eBay auctions of classic comic books, we explore the determinants of the number of bidders in online auctions and the impact of additional bidders on the auction price. We test for winner's curse and examine how secret reserve prices impact both bidding activity and the auction price. In our data set, the number of bidders varies widely from zero in 20.4% of the observed auctions to ten or more in 16.5% but 70% of this variation in bidder numbers is predictable based on the comic being auctioned and attributes of the seller and auction such as third party certification of the comic's condition, the seller's reputation, and the length of the auction.

Each additional bidder tends to increase the realized auction price about 2.4%. A minor part of this increase is apparently either because the auctions have a private value component or because some bidders fail to fully adjust for winners curse. However, most appears due to the inability of bidders to accurately determine the number of bidders they are bidding against. The presence of a secret reserve price sharply reduces the number of bidders in an auction but has little impact on what individual bidders are willing to bid.

Keywords: Winner's curse, auctions, reserve prices, eBay

JEL Classification: D44, L81

Suggested Citation

Dewally, Michaël and Ederington, Louis H., What Attracts Bidders to Online Auctions and What is Their Incremental Price Impact? (September 2004). Available at SSRN: https://ssrn.com/abstract=589861 or http://dx.doi.org/10.2139/ssrn.589861

Michaël Dewally

Towson University - Department of Finance ( email )

8000 York Road
Suite 316 L
Baltimore, MD 21252-0001
United States
410-704-4902 (Phone)

Louis H. Ederington (Contact Author)

University of Oklahoma - Division of Finance ( email )

Norman, OK 73019
United States
405-325-5591 (Phone)
405-325-7688 (Fax)

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