Entry Fees and Endogenous Entry in Electronic Auctions

Abstract

When conducting electronic auctions, sellers obviously wish to maximize their revenue and one tool economic theory suggests they might use is an entry fee. By charging bidders a certain amount for entering an auction, the seller can theoretically extract more surplus from those bidders that choose to enter the auction. The problem a seller faces is that the use of an entry fee might discourage entry. This paper uses economic experiments to address the question of whether or not entry fees can be used by an auctioneer in conjunction with an auction format bidders tend to prefer to raise revenue in the presence of the possibility for buyers to choose between entering the preferred auction with an entry fee or a less preferred alternative auction with a lower fee. Our results show that even though buyers appear to have quite strong preferences for certain auction formats, the preferences are not strong enough to be profitably exploited by entry fees.