November 02, 2022
12:50 - 13:50
CORE - Room C035
Simon Schulten (DICE) will present an empirical work on the interplay between consumer mistakes and firm's behavior in online auctions, entitled "Managing Bidder Learning in Retail Auctions".
Abstract
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When firms exploit behavioral biases, it is natural to think that, eventually, consumers will learn to avoid their mistakes, which limits their exploitation. Profit maximizing firms, however, have an incentive to undermine such learning. We study these learning dynamics in a multi-unit descending price auction with a simultaneous fixed price offer. In our panel of 8 million bids by 280.000 bidders, consumers frequently bid more than the fixed price. Depending on other bidders’ bids, an overbid sometimes leads to paying more than the fixed price (overpaying). We argue overpaying increases the saliency of the consumers’ mistake by making it payoff-relevant and thereby may affect consumer learning. Indeed, bidders who overpay subsequently overbid less often and are more likely to leave the market compared to bidders who similarly overbid but did not overpay. We document a structural break in overpaying and the firm actions that caused it. Methodologically, we discuss identification of our treatment effects using causal graphs and show how these treatment effects identify a three-type structural model of bidder behavior with learning dynamics.
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This session will take place in a hybrid format: in room c.035 at CORE, and on Teams, at the following link.