“Name your price” – online auctions and reference prices

Abstract

Purpose – This paper aims to investigate the presence of varying price points on the impact of product valuations in both English and reverse auctions on potential bidders, that is, those not yet engaged in the auction. Internet auctions, both English style and reverse, constitute one of the success stories of digital commerce. Design/methodology/approach – As its method of research, this paper uses an experimental approach to explore the effects of multiple reference prices. Findings – While previous research has done well to show that a lower initial price decreases barriers to entry and can lead to a higher final price in English-style auctions, this research shows that such a strategy may harm potential bidders’ product perceptions due to multiple reference prices. The authors explore situations of multiple reference prices in the context of reverse auctions, where both higher and lower reference prices are shown to be able to increase product valuations. Research limitations/implications – Additional research of a variety of products and using a representative sample would enhance the findings of this paper. Practical implications – The findings show that reference prices have differing impacts, which are dependent upon the goal of either maximizing or minimizing the distance between the initial price and the price consumers are willing to pay in an online auction. Originality/value – The investigation links differing goals created by the type of auction to the potential impact of the reference price. In addition, we explore the effects of multiple reference prices on consumer valuations.