Using Field Experiments to Test Equivalence Between Auction Formats: Magic on the Internet

Abstract

William Vickrey's predicted equivalences between first-price sealed-bid and Dutch auctions, and between second-price sealed-bid and English auctions, are tested using field experiments that auctioned off collectible trading cards over the Internet. The results indicate that the Dutch auction produces 30-percent higher revenues than the first-price auction format, a violation of the theoretical prediction and a reversal of previous laboratory results, and that the English and second-price formats produce roughly equivalent revenues. (JEL C93, D44)

Consumer Surplus in Online Auctions

“…This allows us to test the implications of stakes and product attributes on surplus levels in a far more generalizable setting. Smith and Walker (1993) have predicted that individuals' behavior will more closely match the predictions of rational behavior as the stakes of the 26 Prior research typically considers only main effects and our hypotheses reflect this. As our detailed analysis will show though, some of the main effects are moderated by interaction terms.…”

Managing Online Auctions: Current Business and Research Issues

“…Their analysis is based on the idea that the winner's profit is dependent on the number of other bidders who participate and on the auction rules in terms of reserve prices and minimum bid levels. Lucking-Reiley et al (1999) find that minimum bids increase the price but also decrease the probability of a sale.…”

“…4 New rules, however, are evolving for the auction of multiple units. 5 Lucking-Reiley (2000) finds that auctioneer fees are much lower on the Internet than in traditional auctions, supporting 4 English auction: ascending bid auction in which bids are open to all to see. The winner is the highest bidder and the price is the highest bid.…”

“…The earliest Internet auctions appeared in 1993, with auctions based on Internet news groups (Lucking-Reiley 2000 Vervest (1998), it is useful to characterize e-markets by the number of buyers and sellers and whether the participants are consumers or businesses (see Figure 2). Auctions are found when a single seller is selling to multiple buyers, or when multiple sellers are selling to single or multiple buyers, so we focus our attention on quadrants 2-4 of Figure 2.…”

“…The ability of online auction sites like eBay to attract millions of satisfied customers is strong evidence that there is no problem with the auction mechanism being used. Lucking-Reiley (1999) conducts experiments with Internet auctions of collectible trading cards, comparing the revenue generation of Dutch auctions with that of first-price auctions, and comparing English auctions with second-price auctions. His goal was to assess whether the theoretical revenue equivalence, regardless of risk attitudes, between English and second-price auctions holds.…”