Bidding behavior in auctions versus posted prices: comparisons of mean and marginal effects

Shang Wu,Jacob R Fooks,Deborah A Delaney,Kent D Messer,Tongzhe Li

doi:10.1017/age.2021.6

Abstract

Abstract Economic experiments have been widely used to elicit individuals' evaluation for various commodities. Common elicitation methods include auction and posted price mechanisms. A field experiment is designed to compare willingness-to-pay (WTP) estimates between these two mechanisms. Despite both of these formats being theoretically incentive compatible and demand revealing, results from 115 adult consumers indicate that WTP estimates obtained from an auction are 32–39 percent smaller than those from a posted price mechanism. A comparison in statistical significance shows that auctions require a smaller sample size than posted price mechanisms in order to detect the same preference change. Nevertheless, the signs of marginal effects for different product characteristics are consistent in both mechanisms.

Highlights

Economists frequently use auctions in experimental economics settings to measure consumers’ preference for goods and services (List and Gallet 2001; Lusk, Feldkamp, and Schroeder 2004; Lusk and Shogren 2007)
Our results suggest that estimated mean willingness to pay (WTP) in auction is smaller than the posted price mechanism WTP in the range of 32–39 percent
In terms of the marginal effects of different product attributes, we find that the auction and posted price mechanisms provide consistent signs, which indicates that consumer preferences for different product attributes do not vary with the elicitation methods

Summary

Introduction

Economists frequently use auctions in experimental economics settings to measure consumers’ preference for goods and services (List and Gallet 2001; Lusk, Feldkamp, and Schroeder 2004; Lusk and Shogren 2007). Researchers have been using posted price questions both in laboratory and in field settings to mimic a more common market setting In this design, participants are asked a question: “Are you willing to purchase this item at $A?” Participants will spend $A to purchase the item if they choose “Yes”, while they will not get the item nor pay anything if they choose “No”. We compare the estimated WTP from a variation of an English auction (Bernard 2006) and posted price questions. In terms of the marginal effects of different product attributes, we find that the auction and posted price mechanisms provide consistent signs, which indicates that consumer preferences for different product attributes do not vary with the elicitation methods. A posted price mechanism requires a larger sample size to detect the same preference change

Literature review

Result

Results

Conclusion