led to insights that improved the study, as did comments from several seminar participants. We are indebted to Mr. Sean Wong, Managing Director of Wanlida Group, for allowing us to use his factory as our experimental lab. We gratefully acknowledge the financial support of Hong Kong Research Grant Council. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.

We use field and natural experiments in online auctions to study the revenue effect of varying the level and disclosure of shipping charges. Our main findings are (1) disclosure affects revenues-for low shipping charges, a seller is better off disclosing; and (2) increasing shipping charges boosts revenues when these charges are hidden. These results are not explained by changes in the number of bidders.

led to insights that improved the study, as did comments from several seminar participants. We are indebted to Mr. Sean Wong, Managing Director of Wanlida Group, for allowing us to use his factory as our experimental lab. We gratefully acknowledge the financial support of Hong Kong Research Grant Council. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

No abstract

We conducted a field experiment to test the benefit from late bidding (sniping) in online auction markets. We compared sniping to early bidding (squatting) in auctions for newly-released DVDs on eBay. Sniping led to a statistically significant increase in our average surplus; however, this improvement was quite small. Nevertheless, the two bidding strategies resulted in a variety of other qualitative differences in the outcomes of auctions. We show that the small gain to sniping together with these other patterns in outcomes cannot be explained by a standard auction model with a single auction and payoff-maximizing opponents. Instead, all of the experimental results can be explained by a model in which multiple auctions are run concurrently and a fraction of our opponents are naïve in that they act as if eBay auctions are literally English auctions rather than dynamic second-price auctions. Our findings illustrate how the effects of behavioral biases identified in the lab may be substantially attenuated in real world market settings.

We introduce a simple method for constructing a scoring rule to elicit an agent's belief about a random variable that is incentive compatible irrespective of her riskpreference. The agent receives a …xed prize when her prediction error, de…ned by a loss function speci…ed in the incentive scheme, is smaller than an independently generated random number and earns a smaller prize otherwise. Adjusting the loss function according to the belief elicitation objective, the scoring rule can be used in a rich assortment of situations. Moreover, the scoring rule can be incentive compatible even when the agent is not an expected utility maximizer. Results from our probability elicitation experiments show that subjects' predictions are closer to the true probability under this scoring rule compared to the quadratic scoring rule.

We analyze a dynamic second-price auction with an informed bidder and an uninformed bidder who, upon seeing a posted price, learns whether his valuation is above that price. In the essentially unique equilibrium, an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise. An uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder. This model also provides a rationale behind the use of a secret reserve price in private-value settings. Copyright (c) 2008, RAND.