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Author: Ángel Hernando-Veciana
Publisher:
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Languages : en
Pages :
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Author: Ángel Hernando-Veciana
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Category :
Languages : en
Pages :
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Author: Nicholas Shunda
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. The Buy-It-Now option on eBay is a leading example of an auction with a buy price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. Introducing a small reference-price effect can shrink the range of buy prices bidders are willing to exercise. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.
Author: Nicholas Shunda
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.
Author: Antonio Rosato
Publisher:
ISBN:
Category :
Languages : en
Pages : 250
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This dissertation consists of three chapters exploring the role that reference-dependent preferences and loss aversion play in auctions and negotiations. The first chapter characterizes the profit-maximizing pricing and product-availability strategies for a retailer selling two substitute goods to loss-averse consumers, showing that limited-availability sales can manipulate consumers into an ex-ante unfavorable purchase. When the products have similar social value, the seller maximizes profits by raising the consumers' reference point through a tempting discount on a good available only in limited supply (the bargain) and cashing in with a high price on the other good (the rip-off), which the consumers buy if the bargain is not available to minimize their disappointment. The price difference between the bargain and the rip-off is larger when the products are close substitutes than when they are distant substitutes; hence dispersion in prices and dispersion in consumers' valuations are inversely related. The seller might prefer to offer a deal on the more valuable product, using it as a bait, because consumers feel a larger loss, in terms of forgone consumption, if this item is not available and are hence willing to pay a larger premium to reduce the uncertainty in their consumption outcomes. I also show that the bargain item can be a loss leader, that the seller's product line is not welfare-maximizing and that she might supply a socially wasteful product. The second chapter studies sequential first-price and second-price auctions when bidders are expectations-based loss-averse. A large body of empirical research in auctions documents that prices of identical products sold sequentially tend to decline across auctions (a phenomenon which has been dubbed "declining price anomaly" or "afternoon effect", as often later auctions take place in the afternoon whereas the first ones usually take place in the morning) . In this chapter I argue that expectations-based reference-dependent preferences and loss aversion provide an alternative, preference-based, explanation for the afternoon effect observed in sequential auctions. First, I show that when bidders have reference-dependent preferences, the equilibrium bidding functions are history-dependent, even if bidders have independent private values. The reason is that learning the type of the winner in the previous auction modifies a bidder's expectations about how likely he is to win in the current auction; and since expectations are the reference point, the optimal bid in each round is affected by this learning effect. More precisely, I identify what I call a "discouragement effect": the higher the type of the winner in the first auction is, the less aggressively the bidding behavior of the remaining bidders in the second auction. This discouragement effect in turn pushes bidders to bid more aggressively in the earlier auction. Moreover, the uncertainty about future own bids, due to the history-dependence of the equilibrium strategies, generates a precautionary bidding effect that pushes bidders to bid less aggressively in the first auction. The precautionary bidding effect and the anticipation of the discouragement effect go in opposite directions; when the latter effect is stronger, a declining price path arises in equilibrium. The third chapter studies the role of expectations-based reference-dependent preferences and loss aversion in a sequential bargaining game with one-sided incomplete information between a seller who makes all the offers and a buyer. I show that loss aversion eases the rent-efficiency trade-off for the seller who can now serve a larger measuer of consumers at an earlier stage. Thus, in equilibrium the seller achieves higher profits and we have less delay with loss aversion than without it. Furthermore, I also show that, besides increasing the seller's profit and overall trade efficiency, loss aversion also reallocates surplus among consumers by increasing the equilibrium payoff of some low-valuation buyers and decreasing that of high-valuation ones.
Author: Mariano Runco
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Category :
Languages : en
Pages :
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This paper proposes a tractable model of reference dependent preferences to explain overbidding in private and common value auctions. It is assumed that the reference point is proportional to the value of the object and that losses are weighed more heavily than gains in the utility function. Equilibrium bidding strategies are derived for first- and second-price private and common value auctions. It is found that this model fits the data of all experiments analyzed better than a standard risk neutral model; moreover, it explains overbidding in private value auctions better than other alternatives. These results suggest that reference dependence, among other factors, might play a role in the widespread tendency of subjects to overbid in most experimental auctions.
Author: A. Banerji
Publisher:
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Category :
Languages : en
Pages :
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Author: Paul Milgrom
Publisher: Cambridge University Press
ISBN: 1139449168
Category : Business & Economics
Languages : en
Pages : 378
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This book provides a comprehensive introduction to modern auction theory and its important new applications. It is written by a leading economic theorist whose suggestions guided the creation of the new spectrum auction designs. Aimed at graduate students and professionals in economics, the book gives the most up-to-date treatments of both traditional theories of 'optimal auctions' and newer theories of multi-unit auctions and package auctions, and shows by example how these theories are used. The analysis explores the limitations of prominent older designs, such as the Vickrey auction design, and evaluates the practical responses to those limitations. It explores the tension between the traditional theory of auctions with a fixed set of bidders, in which the seller seeks to squeeze as much revenue as possible from the fixed set, and the theory of auctions with endogenous entry, in which bidder profits must be respected to encourage participation.
Author: Morris Altman
Publisher: Routledge
ISBN: 131746916X
Category : Business & Economics
Languages : en
Pages : 785
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Book Description
At a time when both scholars and the public demand explanations and answers to key economic problems that conventional approaches have failed to resolve, this groundbreaking handbook of original works by leading behavioral economists offers the first comprehensive articulation of behavioral economics theory. Borrowing from the findings of psychologists, sociologists, political scientists, legal scholars, and biologists, among others, behavioral economists find that intelligent individuals often tend not to behave as effectively or efficiently in their economic decisions as long held by conventional wisdom. The manner in which individuals actually do behave critically depends on psychological, institutional, cultural, and even biological considerations. "Handbook of Contemporary Behavioral Economics" includes coverage of such critical areas as the Economic Agent, Context and Modeling, Decision Making, Experiments and Implications, Labor Issues, Household and Family Issues, Life and Death, Taxation, Ethical Investment and Tipping, and Behavioral Law and Macroeconomics. Each contribution includes an extensive bibliography.
Author:
Publisher: Elsevier
ISBN: 0444633898
Category : Business & Economics
Languages : en
Pages : 749
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Book Description
Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics. This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career. Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics
Author: Robert Rutledge
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Category :
Languages : en
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We experimentally test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of price expectations. In an incentivised valuation task, participants are endowed with a mug and provide their willingness to accept (WTA) to sell it. We manipulate the sale price in a separate, exogenous forced sale scenario, which is predicted to produce a 'comparison effect', moving WTA in the opposite direction to the forced sale price. Consistent with the theory, we observe a treatment effect of between AUD $0.79 and $2.06 in the hypothesised direction; however, it is statistically insignificant. We also elicit participants' loss aversion to account for heterogeneity in the theorised effect; however, controlling for the interaction between our treatment and loss aversion does not consistently strengthen our result.
