Search and Choice in Online Consumer Auctions

Abstract

Price dispersion in simultaneous online auctions is a puzzle in light of the relatively low search costs required to find the lower price. Much of this price dispersion appears to be due to a lack of switching by bidders between auctions, which in turn could be due to inertia related to search costs. We identify some of the influencing factors through a controlled field experiment involving pairs of simultaneous auctions. Keeping the sellers and the goods sold identical between two auctions, we vary auction design features between and within pairs including shipping cost, open reserve, secret reserve price, and duration, and we provide bidders with incentives to search. We use a choice model that examines individual choice between pairs of simultaneous auctions. We find that within-pair price dispersion is substantial and that prices and auction choice by bidders are indeed related to search costs. We find strong inertia in auction choice and find that this effect significantly interacts with time left in the auction. Although individuals do not always choose a lower-priced auction, they are more likely to do so when search costs are low or search incentives are high.