American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Bidder's Curse
American Economic Review
vol. 101,
no. 2, April 2011
(pp. 749–87)
Abstract
We employ a novel approach to identify overbidding in auctions. We compare online auction prices to fixed prices for the same item on the same webpage. In detailed data on auctions of a board game, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent overbidding). A small fraction of overbidders, 17 percent of bidders, suffices to generate the large fraction of auctions with overbidding. We show that the observed behavior is inconsistent with rational behavior, even allowing for uncertainty about prices and switching costs, since the expected auction price also exceeds the fixed price. Limited attention best explains our results. (JEL D12, D44)Citation
Malmendier, Ulrike, and Young Han Lee. 2011. "The Bidder's Curse." American Economic Review, 101 (2): 749–87. DOI: 10.1257/aer.101.2.749Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D44 Auctions