Dissertation Research: Bidding Behavior in Internet Auction Markets

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Internet auction markets are one of the most vibrant and exciting trading institutions of today. A typical online auction is a complicated mechanism offering many design options for the seller to choose from. Furthermore, auctions rarely stand alone. For example, on eBay, the largest marketplace on the Internet, hundreds of auctions for the same or related object close each day. Thus, the buyer is confronted with multitude of options and her decision on how to bid is far from being simple. This doctoral dissertation improvement award will fund an examination of two theories about how market forces influence bidding incentives in the kind of auctions one might find online. The theories will be tested using lab experiments. The data collected from eBay and other auction houses establish two strong empiricalregularities. For example, one group of bidders tends to bid late in the auction while other group likes to progressively revise their bids. We argue that these bidding patterns could be a product of rational response of buyers to the incentives that auction markets generate. Although our theories are largely consistent with the empirical evidence, the main goal of this project is to use experimental methods to further test their robustness. Our experiments will bring new insights into how bidders respond to complicated auctionmechanisms that are commonly implemented on the Internet. They will contribute to the ongoing debate about the interpretation of observed bidding patterns and their overall impact on the performance of auction markets. Findings from this research will allow us to select between numerous explanations that have been proposed about bidding behavior in Internet-type auctions. Based on our results we will be able to evaluate the empirical validity of alternative models and provide implications for designing better and more efficient auction markets.