Abstract
Knowledge of consumers' willingness-to-pay (WTP) is critical for marketing managers when designing optimal pricing policies. The large-scale applicability, reliability, and validity of Vickrey auctions as an incentive-compatible method for eliciting WTP in a real-world setting were tested empirically. The results of 6,548 sealed bids in 28 auctions of costly durables on a popular auction Web site show that regular on-line shoppers have little problem understanding and applying the Vickrey auction bidding strategy. As a result, Vickrey auctions can easily produce a reliable and valid distribution of WTP based on several thousand consumers. A comparison of Vickrey auctions with the more commonly used English or eBay auctions shows, both conceptually and empirically, that the latter formats do not fully reflect the complete range of potential customers' WTP and, therefore, lead to systematic overestimation of price-demand functions. In contrast, WTP information elicited through Vickrey auctions is undistorted by strategic behavior such as bid-sniping and incorporates the full range of WTP information, suggesting that it is better suited for estimating realistic price-demand functions for market research purposes.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.