Time and Online Auctions

By Kuruzovich, Jason | Journal of Electronic Commerce Research, February 1, 2012 | Go to article overview

Time and Online Auctions


Kuruzovich, Jason, Journal of Electronic Commerce Research


ABSTRACT

Online auctions differ from traditional auctions in several ways, but perhaps one of the most significant is the amount of time that bidders interact with the auction mechanism. This paper examines past findings in online auctions and discusses three psychological mechanisms through which bidders may increase their valuations of an item through interaction with the auction mechanism over time. In doing so, this paper provides a theoretical lens through which previous empirical studies of online auctions can be interpreted and serves as a guide for future research.

Keywords: Behavioral economics, prospect theory, online auctions, sniping, auction equivalence

1. Introduction

With the rapid growth of the Internet, online auctions have become a popular and efficient way for both businesses and consumers to exchange goods while allowing businesses to reinvent the way that they manage their relationships with trading partners [Smith et al. 2000]. Consumers have been quick to adopt online auctions for the purchase and sale of everything from collectibles to automobiles. While these online auctions are typically structured around well-studied auction types, past research comparing online and offline auctions has yielded mixed findings [Lee 1998; Overby & Jap 2009]. As a result, numerous researchers have called for an examination of the theoretical and empirical impacts of moving auctions to the online environment [Klein & O'Keefe 1999; Pinker et al. 2003; Van Heck & Vervest 1998].

The increased use of information technology for both online and offline auctions has enabled empirical researchers new opportunities to analyze data on auction outcomes [Bajari & Hortacsu 2003; Katkar & Reiley 2006; Kuruzovich et al. 2010; Lee 1998; Lucking-Reiley et al. 2007] and conduct field experiments [Lucking-Reiley 1999]. These efforts have yielded a greater understanding of mechanism design and the behavior of bidders and sellers-providing empirical tests of auction theory and examining the impact of features unique to online auctions. These studies have presented three particularly intriguing findings not predicted by traditional auction theory. First, Lee [1998] found that an electronic implementation of a wholesale auction resulted in higher overall prices than in the earlier offline market. Second, Lucking-Reiley [1999] found a lack of equivalence between Dutch and first-price sealed bid auctions in an online field experiment-findings which differed both from theoretical predictions and prior offline experiments. Finally, several studies have observed the prevalence of bid "sniping," in which the majority of the bids arrive in the final minutes or seconds of the auction [e.g., Bapna 2003; Ely & Hossain 2009; Glasner 2002; Ockenfels & Roth 2002].

A key difference between the online auctions and the traditional "live" auctions is the length of time over which the auction occurs, and this paper suggests that this is important to understanding differences between online and offline auctions. Empirical studies of auctions have reported the significance of the amount of time in the determination of final price for items being auctioned [Lucking-Reiley et al. 2007]. The mechanism proposed to justify the higher revenues of longer auctions has been the arrival of bidders with higher valuation. This paper discusses alternative causal mechanisms through which the extended time of Internet auctions can influence bidder valuation and explain prior empirical studies. In order to help understand how consumers interact with auction mechanisms over time, this paper will draw upon the extensive research on individual decision-making originating in prospect theory [Kahneman & Tversky 1979] and the theory of mental accounting [Thaler 1980], in which individuals are found to make decisions in ways which differ from traditional utility theory.

Over the past 25 years, prospect theory has been recognized as a modification of traditional economic theory that in some cases more accurately explains how individuals actually make decisions. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Time and Online Auctions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.