THE BEHAVIOR OF INEXPERIENCED BIDDERS IN INTERNET AUCTIONS

Authors

  • JEFFREY A. LIVINGSTON

    1. Livingston: Assistant Professor, Department of Economics, Bentley College, 175 Forest Street, Waltham, MA 02474. Phone 1-781-891-2538; Fax 1-781-891-2896; E-mail jlivingston@bentley.edu
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      Thanks to two anonymous referees, Dhaval Dave, Patrick Scholten, Saumyanil Deb, and attendees at seminars at Bentley College and the Southern Economic Association conference who all provided many helpful comments and suggestions. Bidisha Ghosh and Yunlei Tu provided excellent research assistance. Of course, all remaining errors are my own.


Abstract

In Internet auctions, bidders alter their strategies as they gain market experience. While inexperienced bidders bid the same high amounts regardless of the seller’s reputation, experienced bidders bid substantially less if the seller has yet to establish a reputation and raise their bids as reports are filed that the seller has treated bidders well in the past. Experienced bidders also wait until much closer to the end of the auction to place their bids, although it takes very little experience to learn that waiting to submit one’s bid is a superior strategy. (JEL L14, L15, D83, D12)

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