Reputations in Bidding Fee Auctions∗

This paper analyzes bidding fee auctions, the recent auction format that is a nonstandard relative of the war of attrition. In bidding fee auctions, the prize value diminishes as the auction progresses, and the person who pays the most does not usually win. With over 300,000 daily visitors in the U.S. alone, bidding fee auction websites are an increasingly common way to shop online.1 In my sample of 52 million individual bids, these auctions are characterized by overbidding as revenues routinely double prize values. Even experienced users frequently earn negative returns. Despite this apparent violation of individual rationality constraints, bidders generally respond to underlying economic incentives. In this paper, I identify the aggressive strategies employed by savvy users and I interpret the causes of their (relative) success.