Auction mechanisms and the measurement of WTP and WTA

Abstract

We evaluate the impact of three auction mechanisms -the Becker-DeGroot-Marschak mechanism, the second-price auction, and the random nth-price auction -in the measurement of willingness to pay (WTP) and willingness to accept (WTA) measures of value. Our results show that initial bidding in trial 1 in each auction does not contradict the endowment effect; but that, if it is the endowment effect that governs people's initial bidding behavior, it can be eliminated with repetitions of a second-price or random nth-price auction; and if the thesis is that the effect should persist across auctions and across trials is right, our results suggest that there is no fundamental endowment effect.

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

“…For example, Shogren et al (1994) report that initial WTA/WTP ratios of two or more decrease to much lower values after ten repetitions, with final ratios often not significantly greater than one. Similar findings are reported by Shogren et al (2001), andKnetsch et al (2001). 5 For various types of goods and numbers of repetitions, the pattern seems to be the same: the disparity tends to decay when subjects interact in 2 nd -price auctions.…”

“…Knetsch and Sinden, 1984;Boyce et al, 1992;Bateman et al, 1997), and in repeated market experiments (e.g. Coursey et al, 1987;Shogren et al 1994Shogren et al , 2001Knetsch et al, 2001;Loomes et al, 2003). In a recent review, Horowitz and McConnel (2002) report that the median ratio between mean WTA and median WTP in forty-five of these studies is 2.6 (mean 7.2).…”

“…Yet, recently, several studies have found that the extent of the disparity is greatly reduced for experienced traders (List, 2003a(List, , 2004 and when agents repeatedly interact in experimental markets (e.g. Shogren et al, 2001;Loomes et al, 2003).…”

“…Yet, recently, several studies have found that the extent of the disparity is greatly reduced for experienced traders (List, 2003a(List, , 2004 and when agents repeatedly interact in experimental markets (e.g. Shogren et al, 2001;Loomes et al, 2003).Taken at face value, this whole body of evidence poses a theoretical puzzle.On the one hand, the existence and robustness of the disparity in one-off situations seems to indicate that preferences depart from the assumptions of standard consumer theory in systematic ways. This has led to the development of reference-dependent models that incorporate such departures (e.g.…”

Short communication. Bid affiliation in repeated random nth price auction

“…For instance, Rustrom (1998) and Lusk et al (2004) compared results from BDM and English auctions of five types of meat steak and a box of gourmet chocolate and concluded that bid affiliation is not responsible for the changes in bids across bidding rounds. However, Shogren et al (2001b) found that subjects' willingness to pay for both Bid affiliation in random nth price auction 23 coffee mug and candy bar increases in a repeated second-price auction but not in a BDM auction. They concluded that affiliation of bids could be an explanation for this difference in bidding behaviour between the two mechanisms, but no formal test was carried out.…”