Auction fever: The effect of opponents and quasi-endowment on product valuations

Abstract

The wide adoption of dynamic second-price auctions as the format of choice for Internet-based (online) transactions has created an interest in understanding how individuals behave in such environments. The current work concentrates on two dynamic effects, which we call quasi-endowment and opponent effect, and finds that these effects may result in over-bidding. The results of two experimental auctions - one involving hypothetical bids and the other real-money bids - demonstrate that bids reflect valuations that include the nonnormative influences of the two factors. Quasi-endowment and opponent effects could lead to the behaviors of repeated bidding and sniping commonly observed in second-price online auctions such as eBay. © 2004 Wiley Periodicals, Inc. and Direct Marketing Educational Foundation, Inc.