Determinants of Elapsed Time to Switch between Auctions: Findings from a Hazard Function Model with Unobserved Heterogeneity

Abstract

Purpose – Online auctions, which have become an important aspect of online sales, are generally regarded as stand-alone events. However, in contrast to offline auctions, online auctions can be subject to the presence of simultaneous competing auctions. This study models and estimates determinants of elapsed time to switch across concurrent auctions, with special attention to unobserved heterogeneity among bidders. Design/methodology/approach – Since auctions are dynamic and since the current winning bid progresses over time, we study time dependency over the course of an auction with hazard function models. To account for unobserved heterogeneity, we use a latent class approach, which identifies bidder segments based on both observed and unobserved factors. Findings – Our findings show significant heterogeneity across bidders, revealed by their varying degrees of propensity to switch across auctions. The three segments of bidders are The Inerts - about 30%, The Switchers - less than 10%, and The In-Betweens. According to our findings, bidders can induce other bidders to switch to a concurrent auction by responding quickly to the current high bid. Moreover, we find a surprisingly high degree of inertia and reluctance to switch towards the end of the auction when bidding is most critical. Originality/value – To our knowledge, this study is the first to model elapsed time to switch from one auction to a simultaneous auction for an identical product, and to investigate determinants of the time required to switch, with special attention to unobserved heterogeneity across bidders.