Evaluating the Impacts of Auction Bidding Restrictions on Consumer Surplus and Behaviors - An Empirical Study of Penny Auctions

Penny auction is an innovative, popular online auction format in which bidders are charged a small fee for placing each bid. A penny auction typically ends up with an extremely low final auction price, such that only one winning bidder can derive positive consumer surplus whereas other bidders lose out from the bidding costs. This makes it challenging to retain bidders who rarely win. Using a field experiment, we empirically evaluate how novel auction rules can improve overall consumer retention and longterm bidding participations. Specifically, we implemented three restrictions on bidding activities of customers. Our results show these restrictions enhance the overall number of bids by 50%. The intuition is to restrict the winning probability of a small group of bidders who won most of the auctions so that more bidders can enjoy the thrill and fun of winning an auction, inducing them to bid more in the long run.

[1]  Alan Dick,et al.  Customer loyalty: Toward an integrated conceptual framework , 1994 .

[2]  Cecil Eng Huang Chua,et al.  The Role of Online Trading Communities in Managing Internet Auction Fraud , 2007, MIS Q..

[3]  Catherine E. Connelly,et al.  In Justice We Trust: Predicting User Acceptance of E-Customer Services , 2008, J. Manag. Inf. Syst..

[4]  Elena Katok,et al.  Regret and Feedback Information in First-Price Sealed-Bid Auctions , 2008, Manag. Sci..

[5]  Wolfgang Jank,et al.  Consumer Surplus in Online Auctions , 2007, Inf. Syst. Res..

[6]  J. Farr.  Response requirements and primacy-recency effects in a simulated selection interview. , 1973 .

[7]  W. Reinartz,et al.  The Impact of Customer Relationship Characteristics on Profitable Lifetime Duration , 2003 .

[8]  Puneet Manchanda,et al.  An empirical analysis of individual level casino gambling behavior , 2011 .

[9]  Georgios Zervas,et al.  Information Asymmetries in Pay-Per-Bid Auctions: How Swoopo Makes Bank , 2010, ArXiv.

[10]  Alok Gupta,et al.  Overlapping Online Auctions: Empirical Characterization of Bidder Strategies and Auction Prices , 2009, MIS Q..

[11]  M. Konovsky,et al.  Citizenship behavior and social exchange. , 1994, Academy of Management journal. Academy of Management.

[12]  M. Konovsky.  Understanding Procedural Justice and Its Impact on Business Organizations , 2000 .

[13]  N. Anderson,et al.  Primacy effects in personality impression formation. , 1961, Journal of abnormal and social psychology.

[14]  Jeffrey M. Wooldridge,et al.  Introductory Econometrics: A Modern Approach , 1999 .

[15]  A. Cameron,et al.  Microeconometrics: Methods and Applications , 2005 .

[16]  Izak Benbasat,et al.  Special Issue: Trust in Online Environments , 2008, J. Manag. Inf. Syst..

[17]  Joseph C. Nunes,et al.  The Effect of Product Assortment Changes on Customer Retention , 2005 .

[18]  M. Usher,et al.  The demise of short-term memory revisited: empirical and computational investigations of recency effects. , 2005, Psychological review.

[19]  Oliver Hinz,et al.  The Impact of Information Diffusion on Bidding Behavior in Secret Reserve Price Auctions , 2008, Inf. Syst. Res..

[20]  GoesPaulo,et al.  Overlapping online auctions , 2009 .

[21]  John Zeleznikow,et al.  The Need to Incorporate Justice into Negotiation Support Systems , 2009, BIS.

[22]  C. J. Wolfe,et al.  Negotiation Support Systems in Budget Negotiations: An Experimental Analysis , 2005, J. Manag. Inf. Syst..

[23]  Yong-Pin Zhou,et al.  Incorporating Satisfaction into Customer Value Analysis: Optimal Investment in Lifetime Value , 2006 .

[24]  Consumer and Producer Behavior in the Market for Penny Auctions : A Theoretical and Empirical Analysis , 2009 .

[25]  Kai Lung Hui,et al.  What Do They Want? Motivating Consumers to Disclose Personal Information to Internet Businesses , 2002, ICIS.

[26]  Sonal Mittal.  Equilibrium Analysis of Generalized Penny Auctions , 2010 .

[27]  Chao-Min Chiu,et al.  Examining the integrated influence of fairness and quality on learners’ satisfaction and Web‐based learning continuance intention , 2007, Inf. Syst. J..

[28]  DeGross.  Errata Notes: User Heterogeneity and Its Impact on Electronic Auction Market Design: An Empirical Exploration , 2004 .

[29]  Steven Walczak,et al.  Dressing Your Online Auction Business for Success: An Experiment Comparing Two eBay Businesses , 2008, MIS Q..

[30]  Robert F. Easley,et al.  Bidding Patterns, Experience, and Avoiding the Winner's Curse in Online Auctions , 2010, J. Manag. Inf. Syst..

[31]  Toomas Hinnosaar,et al.  Penny Auctions , 2009 .

[32]  E. Maasland,et al.  Auction Theory , 2021, Springer Texts in Business and Economics.

[33]  Ashok K. Mishra,et al.  Income, Wealth, and the Economic Well-Being of Farm Households. , 2002 .

[34]  Sung S. Kim,et al.  Internet Users' Information Privacy-Protective Responses: A Taxonomy and a Nomological Model , 2008, MIS Q..

[35]  Tamara Dinev,et al.  An Extended Privacy Calculus Model for E-Commerce Transactions , 2006, Inf. Syst. Res..

[36]  Karen S. Cook,et al.  Distributive Justice: A Social-Psychological Perspective. , 1986 .

[37]  F. Dwyer.  Customer lifetime valuation to support marketing decision making , 1997 .

[38]  Zinta S. Byrne,et al.  Moral Virtues, Fairness Heuristics, Social Entities, and Other Denizens of Organizational Justice. , 2001 .

[39]  D. Campbell,et al.  Recency and primacy in persuasion as a function of the timing of speeches and measurements. , 1959, Journal of abnormal psychology.

[40]  A. Tversky,et al.  The framing of decisions and the psychology of choice. , 1981, Science.

[41]  R. Folger,et al.  Effects of Procedural and Distributive Justice on Reactions to Pay Raise Decisions , 1989 .

[42]  R. Bies,et al.  Consumer Privacy: Balancing Economic and Justice Considerations , 2003 .

[43]  Icek Ajzen,et al.  Equity in Attitude Formation and Change , 1982 .

[44]  Jerald Greenberg,et al.  The Justice Concept in Social Psychology , 1982 .