Bidder Motives in Cause Related Auctions

We study cause-related auctions where a percentage of the dynamically determined purchase price of an item is donated to charity. Little is known about the effectiveness of such auctions. Bidders who value donations to charity have an incentive to bid more aggressively in such auctions. Regardless of whether they win or not, these bidders can significantly affect prices. The purpose of this paper is to study bidders' willingness to pay a premium in charity auctions and the drivers that affect the charity premium. We use a carefully designed field experiment involving simultaneous pairs of auctions that are identical in all respects but percentage of the proceeds donated to charity. This design gives us the ability to look at bidder choice among auctions based on charitable considerations. We use a mixture model approach to allow for different types of individual preferences. We find that individuals fall into three segments: two altruistic segments and a selfish segment. The altruistic segments, which drive up the charity premium, can be classified as warm glow bidders who derive pleasure from the act of giving and other-regarding bidders who give for selfless reasons. Results show that the difference in donation percentages is the major factor influencing the charitable premium. However, bidders differ considerably in their responses to donation percentages. While other-regarding bidders tend to seek auctions where a greater percentage of revenue is donated to charity, warm glow bidders only contribute when the charity premium is sufficiently low. Thus, managers should focus their marketing efforts on appealing to these different segments, depending on the percentage donated to charity.

[1]  J. Ledyard.  Public Goods: A Survey of Experimental Research , 1994 .

[2]  C. H. Lushbough.  Philanthropy , 1959, Science.

[3]  C. Bhattacharya,et al.  Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility , 2001 .

[4]  R. Isaac,et al.  Silent Auctions in the Field and in the Laboratory , 2005 .

[5]  Peter Navarro,et al.  Why Do Corporations Give to Charity , 1988 .

[6]  J. Andreoni.  Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence , 1989, Journal of Political Economy.

[7]  Peter A. Dacin,et al.  The Company and the Product: Corporate Associations and Consumer Product Responses , 1997 .

[8]  Jordan J. Louviere,et al.  Modeling the effects of including/excluding attributes in choice experiments on systematic and random components , 2007 .

[9]  J. Kagel,et al.  Handbook of Experimental Economics , 1997 .

[10]  John M. Olin,et al.  Probabilistic versus random-utility models of state dependence: an empirical comparison , 2003 .

[11]  Susan Rose-Ackerman,et al.  Altruism, Nonprofits, and Economic Theory , 1996 .

[12]  Jessica Holmes,et al.  Charity Auctions: A Field Experiment , 2008 .

[13]  Donald R. Lehmann,et al.  The impact of altruism and envy on competitive behavior and satisfaction , 2001 .

[14]  John W. Pracejus,et al.  ON THE PREVALENCE AND IMPACT OF VAGUE QUANTIFIERS IN THE ADVERTISING OF CAUSE-RELATED MARKETING (CRM) , 2003 .

[15]  M. Strahilevitz,et al.  Donations to Charity as Purchase Incentives: How Well They Work May Depend on What You are Trying to Sell , 1998 .

[16]  Huseyin Yildirim,et al.  Why charities announce donations: a positive perspective , 2001 .

[17]  J. Carpenter,et al.  Charity Auctions: A Field Experimental Investigation , 2004, SSRN Electronic Journal.

[18]  Donald R. Lichtenstein,et al.  The Effect of Corporate Social Responsibility on Customer Donations to Corporate-Supported Nonprofits , 2004 .

[19]  Mark Vandenbosch,et al.  An Empathy-Helping Perspective on Consumers' Responses to Fund-Raising Appeals , 2008 .

[20]  G. Becker.  A Theory of Social Interactions , 1974 .

[21]  A. Prasad,et al.  What can grocery basket data tell us about health consciousness , 2008 .

[22]  Amihai Glazer,et al.  A Signaling Explanation for Charity , 1996 .

[23]  Catherine C. Eckel,et al.  An Experimental Test of the Crowding Out Hypothesis , 2005 .

[24]  D. Malhotra,et al.  Towards a competitive arousal model of decision-making: A study of auction fever in live and Internet auctions , 2005 .

[25]  D. Ettinger.  Bidding Among Friends and Enemies , 2003 .

[26]  Neeraj Arora.  Estimating joint preference: A sub-sampling approach , 2006 .

[27]  Rick L. Andrews,et al.  Retention of latent segments in regression-based marketing models , 2003 .

[28]  Xueming Luo,et al.  Corporate Social Responsibility, Customer Satisfaction, and Market Value , 2006 .

[29]  Magne Supphellen,et al.  Developing, exploring, and validating a typology of private philanthropic decision making , 2001 .

[30]  U. Fischbacher,et al.  The nature of human altruism , 2003, Nature.

[31]  Anil Menon,et al.  Cause-Related Marketing: A Coalignment of Marketing Strategy and Corporate Philanthropy , 1988 .

[32]  Tom Wansbeek,et al.  Interaction between target and mailing characteristics in direct marketing, with an application to health care fund raising , 1997 .

[33]  Russell D. Roberts,et al.  A Positive Model of Private Charity and Public Transfers , 1984, Journal of Political Economy.

[34]  Timothy C. Salmon,et al.  Revenue from the Saints, the Showoffs and The Predators: Comparisons of Auctions with Price-preference Values , 2006 .

[35]  Miranda R. Goode,et al.  The Psychological Consequences of Money , 2006, Science.

[36]  P. Franses,et al.  Does Irritation Induced by Charitable Direct Mailings Reduce Donations? , 2008 .

[37]  John L. Turner,et al.  How (Not) to Raise Money , 2005, Journal of Political Economy.

[38]  Ronald Paul Hill,et al.  The profit implications of altruistic versus egoistic orientations for business-to-business exchanges , 2009 .

[39]  Gary J. Russell,et al.  A Probabilistic Choice Model for Market Segmentation and Elasticity Structure , 1989 .

[40]  Stephen J. Arnold,et al.  The Role of Marketing Actions with a Social Dimension: Appeals to the Institutional Environment , 1999 .

[41]  James Konow,et al.  Mixed Feelings: Theories and Evidence of Warm Glow and Altruism , 2006 .

[42]  J. Andreoni,et al.  Which is the Fair Sex? Gender Differences in Altruism , 2001 .

[43]  Serge-Christophe Kolm,et al.  Handbook of the Economics of Giving, Altruism and Reciprocity , 2006 .

[44]  Brian McManus,et al.  Charity Auctions , 2002 .

[45]  Peter T. L. Popkowski Leszczyc,et al.  Empirical Testing of Reference Price Effect of Buy Now Prices in Internet Auctions , 2008 .