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Understanding Willingness-to-Pay Formation of Repeat Bidders in Sequential Online Auctions

Management Information Systems, Eller College of Management, University of Arizona, Tucson, Arizona 85721
Accounting and Information Systems Area, University of Kansas, Lawrence, Kansas 66045
Information Systems and Operations Management, Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195
pgoes{at}eller.arizona.edu
gkaruga{at}ku.edu
tripathi{at}u.washington.edu

A growing number of vendors are using a sequence of online auctions to sell large inventories of identical items. Although bidding strategies and bidder behavior in single auctions have been extensively studied, limited research exists on bidding in sequential auctions. We seek to explain how bidders in such an environment learn from the information, and form and update their willingness to pay (WTP). Using a large data set from an online auction retailer, we analyze the evolution of the bidders' WTP as well as the effect of auction design on bidders' WTP in sequential auctions. We see our study in the context of a longitudinal field experiment, in which we were able to track actions of repeat bidders over an extended period of time. Our results show that bidders' WTP in sequential auctions can be explained from their demand characteristics, their participation experience in previous auctions, outcomes in previous auctions, and auction design parameters. We also observe, characterize, and measure what we call a modified demand reduction effect exhibited across different auctions, over time, by multiunit demand bidders. Our findings are important to enable better auction mechanism design, and more sophisticated bidding tools that explore the rich information environment of sequential auctions.

Key Words: sequential online auctions; bidding behavior; willingness to pay; demand reduction
History: This paper was received on April 5, 2006.