Formation of Willingness to pay by Repeat Bidders in Sequential Online Auctions

In this study, we investigate the formation of bidder’s willingness to pay (WTP) in sequential online auctions. Our findings contribute to the literature of online auctions in the following ways. First, we detect and empirically measure in a real world scenario the WTP updating phenomenon mentioned by Engelbrecht-Wiggans (2000). By considering the environment of multiple sequential auctions of the same item, and its unique information characteristics, we investigate how bidders refine their WTP in stages and when they stop. Using the bidding history of individual bidders and the evolution of their WTP over the sequence of auctions, we explain how bidders learn. We demonstrate heterogeneity in bidders’ learning and updating their WTP in sequential auctions. We further investigate the key drivers that determine bidders’ WTP commitments in sequential online auctions. We then develop an empirical model to explain bidding pattern of repeat bidders based on their bids, winning bids and the pertinent auction design parameters from the previous auctions they participated. We use data from a popular online auction house to test the significance of our model. The unique characteristics of this dataset provide the necessary background of a longitudinal field experiment that enabled us to track the repeat bidders and their actions. Earlier studies in sequential auctions () identified an auction out come of declining auction prices. This outcome has been used to show that when selling multiple substitutable items, sequential auctions of unit lot size efficiently allocate the objects to the buyers. This may not be true when you consider the dynamics of WTP revisions by repeat bidders as they learn from the informational outputs of the auction sequence itself.