reputation formation in economic transactions abstract we investigate patterns of information transmission and the evolution of behaviour in standard trust games where reputational information can be exchanged between individual agents within a population but does not become public we vary the nature of information that could be transmitted either a subjective rating or the objective details of a transaction as well as the cost of information transmission either zero or positive we find that information transmission is heavily used if it is costless but only moderately if it has positive cost objective information effectively increases the average amount sent in the trust game and thus efficiency and average profits as well as the return rate only if transmission is costless and therefore is heavily used subjective information a rating only increases transfer and return rates in a control treatment where it becomes publicly available but not for private communication a detailed analysis of the determinants of information transmission shows a positive influence of a the transfer made to a receiver b experience of exploitation and c points to reciprocity in information transmission

bidder preferences among auction institutions i introduction auctions have become a pervasive method of exchange in the online world as each day thousands of auctions take place online and this trade volume totals to billions of dollars worth of goods per year 1 this large volume of auction transactions implies the existence of a large number of sellers competing for buyers the obvious implication is that the competition among the sellers for the pool of potential buyers can be fierce and any competitive edge a seller can find could be important one such competitive edge a seller might exploit is using an auction design that attracts bidders away from their competitors when designing a real auction or modeling a theoretical one the entry decision of prospective bidders is rarely considered most auction analysis is performed assuming that a certain number of bidders will participate for certain or perhaps that the number of bidders is unknown and randomly determined it should be clear however that the most crucial part of a successful auction is encouraging as many bidders as possible to participate in general this should be expected to have a positive effect on revenue at least in noncommon value environments and in certain types of auctions it may help combat the possibility of bidder collusion because there are typically competing auctions available for similar goods or even outside options that bidders can pursue when auctions are for unique goods it is important to understand how the aspects of an auction format can effect the entry decision of a bidder consider a bidder who is faced with the choice of entering one of two auctions for similar or even identical objects how does this bidder make the decision of which auction to enter the obvious answer is that the bidder will enter into the auction that maximizes his or her expected utility so long as that expected utility is greater than some reservation value the real question then is how are these expected utilities constructed profit from participating in the auction is an obvious argument there are also a number of environmental considerations that might effect this decision that would be difficult to account for precisely such as the reputation and trustworthiness of the auctioneer quality of the advertisement for the auction and things of this nature it is also possible that the format of the auction itself can have an impact on the preferences of the bidder this latter point will be the issue of this study the particular focus will be looking at bidder preferences between the two most common standard auction formats used in the field the sealed bid first price will be abbreviated as just the sealed bid auction and the ascending or english auction the other reason we are interested in comparing these two auction formats rather than the ascending and second price or first price and descending is that it seems reasonable to expect bidders to have preferences between the two due to the strategic differences between them such differences lead to substantial differences in terms of the difficulty of deciding how to bid and also in the possibility that an outcome leads to a bidder experiencing some form of regret regret may occur in a first price auction when a bidder loses to a bid that is below his value as he may think that if only he had bid higher he could have won although such feelings of regret may be considered irrational that does not preclude their existence such a scenario should not reasonably occur in an ascending auction if one considers the situation of a bidder choosing between two auctions that differ only in regard to whether the auction is being conducted according to an ascending or sealed bid format it is not immediately obvious which would be the most preferred even assuming a standard symmetric independent private values environment were all bidders risk neutral then of course revenue equivalence would hold and the bidders would be indifferent

how to set minimum acceptable bids with an application to real estate auctions in a general auction model with affiliated signals common components to valuations and endogenous entry we compute the equilibrium bidding strategies and outcomes and derive a lower bound on the optimal reserve price this lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods we illustrate how to compute the lower bound using data from real estate auctions

women s discrimination in developing countries a new data set for better policies summary based on a new data set this paper develops two innovative indicators to measure gender inequalities in developing countries the indicators measure different aspects of constraints imposed on women by social institutions that is laws norms traditions and codes of conduct that exist in societies for centuries the paper finds that social institutions are the most important single factor determining women s participation in economic activities outside the household

reputation and prices on the e market evidence from a major french platform we use an exhaustive data set from one of france s largest e commerce platforms priceminister com to estimate a statistical causal effect of a seller s reputation rating and size on transaction prices we go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations we can also produce results for a large range of product categories books cds video games or dvds product conditions used or new and seller types individual or professional sellers our results show large scale empirical evidence of a significant positive and strong effect of seller reputation on prices

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

estimating demand from ebay prices abstract this paper presents results for identification and estimation of the value distribution from ebay auction prices the paper presents results for ebay type auctions with independent private values and unobserved participation it is first shown that the distribution of values is identified from observing the distribution of prices and knowing the distribution of potential bidders the main identification result presents conditions for which the distribution of values and the distribution of potential bidders are simultaneously identified not surprisingly the intuition is similar to the standard results for identifying demand from observed equilibrium prices the estimation method suggested by the identification results is used to estimate the value distribution for the c5 chevrolet corvette sold on ebay the results suggest that a simple ols model on prices will over estimate the mean value of the item the estimation results are then used to calculate the optimal reserve price for these cars the estimated optimal reserves are compared to the actual reserves actual hidden reserves are set much higher than actual non hidden reserves the evidence suggests sellers set buy it nows and hidden reserves optimally to account for re listing opportunities

efficient competition through cheap talk the case of competing auctions we consider a large market where auctioneers with private reservation values compete for bidders by announcing cheap talk messages if auctioneers run efficient first price auctions then there always exists an equilibrium in which each auctioneer truthfully reveals her type the equilibrium is constrained efficient assigning more bidders to auctioneers with larger gains from trade the choice of the trading mechanism is crucial for the result most notably the use of second price auctions equivalently ex post bidding leads to the nonexistence of any informative equilibrium we examine the robustness of our finding in various dimensions including finite markets and equilibrium selection

how valuable is a good reputation a sample selection model of internet auctions on the online auction site ebay by convention sellers do not ship goods to winning bidders until after they have received payment so there is an opportunity for sellers to take advantage of bidders trust realizing this the designers of ebay created a system that relies on self enforcement using reputation several recent studies have found that bidders give little or no reward to sellers who have better reputations i show that in fact sellers are strongly rewarded for the first few reports that they have behaved honestly but marginal returns to additional reports are severely decreasing

bidding frenzy speed of competitor reaction and willingness to pay in auctions this research examines how the intensity of the dynamic competitive interaction with other bidders in ascending auctions influences consumers willingness to pay wtp for auctioned products it focuses on one important aspect of this interaction the speed of competitor reaction the key hypothesis is that having one s own bids reciprocated by competing bidders more quickly increases one s wtp in an auction evidence from five experiments demonstrates this effect and pinpoints the essential aspects of the psychological mechanism that underlies it in particular the effect of speed of competitor reaction on bidding behavior 1 is serially mediated by the perception that the auction is more intensely competitive and by a greater desire to win 2 is distinct from the effects of time pressure and of the auction s duration or overall rate of progression 3 is not driven by inferences about the auctioned product s market value 4 is not qualified by the number of competing bidders nor due to any inferences about the latter and 5 hinges on direct competitive interaction with other human bidders

economic insights from internet auctions this paper surveys recent studies of internet auctions four main areas of research are summarized first we survey several studies that document and attempt to explain the frequently observed sniping or last second bidding behavior in these auctions second we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets most notably due to the winner s curse third we explore research about the role of reputation mechanisms installed to help combat these distortions finally we discuss what internet auctions have to teach us about auction design

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

frictions in internet auctions with many traders a counterexample abstract we show that when frictions are present the peters and severinov 2006 ps bidding rule is no longer efficient nor a pbe of the ps game researchers should be cautious when using the ps bidding rule in markets with frictions like ebay

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

selling online versus live a seller choosing between auctioning online and live faces a tradeoff lower transaction costs online against more rents left with the bidders we model this tradeoff and apply the theory to auctions of art the crucial parameter for whether the seller does better online than live is not the expected price but the valuation uncertainty

nonstandard bidder behavior in real world auctions empirical work on auctions has found that bidders deviate from standard behavior in important ways we investigate a range of these behaviors including nonrational herding auction fever quasi endowment effect and escalation of commitment our innovations are to more completely control for unobservables by using new data from a field experiment on ebay and by accounting for censoring of bids below the starting price consistent with standard auction theory and in contrast to the predictions of the nonstandard behaviors we find that auction starting price has no effect on bidder willingness to pay in a private values setting we conclude that there is little evidence that these nonstandard behaviors are important in the field

the effect of shill bidding upon prices experimental evidence this paper explores through a series of experiments the effect of shill bidding upon revenues and prices in auctions we study the practice of shill bidding in a common value framework our findings are consistent with the prediction that if bidders are aware of the possibility of seller participation in an auction profits will be reduced on average we also study factors that affect bidder and seller participation decisions shill bidding can alleviate the problem of the winner s curse by lowering the price and it can thus provide benefits to bidders

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

researching preferences valuation and hypothetical bias a number of recent papers in environmental economics have focused on the process of researching preferences agents are uncertain about preferences but with effort may narrow their uncertainty this issue has arisen in formulating bids in contingent valuation cv as well as the debate over the divergence between wtp and wta in the context of cv it has been suggested that the hypothetical nature of the preference elicitation process biases responses this paper provides both a theoretical model and experimental evidence to contribute to this debate the model is a model of competitive bidding for a private good with two components that are particularly relevant to the debate the first component is that bidders are unsure of their own value for the private good but may purchase information about their own value researching preferences the second component is that there is a probability that the auction is hypothetical that the winning bidder will not get the private good and will not pay the winning bid the experiment tests this theoretical model of bidding equilibrium and analyzes the effects of variations in the parameters hypotheticalness information costs and number of agents on the endogenous variables such as the proportion of bidders who become informed and the winning bid experimental results suggest that an increase in the hypotheticalness of an auction tends to decrease the likelihood that bidders pay for information on their valuation with an ambiguous effect on the winning bid

dividing online and offline a case study every new method of trade offers an opportunity for economic agents to compare its costs and benefits relative to the status quo such comparison motivates sorting across market segments and reshapes the whole marketplace the internet provides an excellent example it introduces substantial search cost savings over brick and mortar retail stores but imposes new obstacles for sellers to convey quality using sports card trading as a case study we provide empirical evidence on 1 the sorting of product quality between the online and offline segments 2 the changes for retail outlets after the internet came into place and 3 how supporting industries such as professional grading and card manufacturing adapted to take advantage of the new market copyright 2007 wiley blackwell

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

bayesian inference in structural second price common value auctions structural econometric auction models with explicit game theoretic modeling of bidding strategies have been quite a challenge from a methodological perspective especially within the common value framework we develop a bayesian analysis of the hierarchical gaussian common value model with stochastic entry introduced by bajari and hortacsu a key component of our approach is an accurate and easily interpretable analytical approximation of the equilibrium bid function resulting in a fast and numerically stable evaluation of the likelihood function we extend the analysis to situations with positive valuations using a hierarchical gamma model we use a bayesian variable selection algorithm that simultaneously samples the posterior distribution of the model parameters and does inference on the choice of covariates the methodology is applied to simulated data and to a newly collected dataset from ebay with bids and covariates from 1000 coin auctions we demonstrate that the bayesian algorithm is very effici

business to business electronic commerce just as the industrial revolution mechanized the manufacturing functions of firms the information revolution is automating their merchant functions four types of potential productivity gains are expected from business to business b2b electronic commerce cost efficiencies from automation of transactions potential advantages of new market intermediaries consolidation of demand and supply through organized exchanges and changes in the extent of vertical integration of firms the article examines the characteristics of b2b online intermediaries including categories of goods traded market mechanisms employed and ownership arrangements and considers the market structure of b2b e commerce

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

internet auctions with many traders abstract we study a multi unit auction environment similar to ebay sellers each with a single unit of a homogeneous good set reserve prices at their own second price auctions each buyer has private value for the good and wishes to acquire a single unit buyers can bid as often as they like and move between auctions we characterize a perfect bayesian equilibrium for this decentralized dynamic mechanism in which conditional on reserve prices an efficient set of trades occurs at a uniform price in a large but finite market the sellers set reserve prices equal to their true costs under a very mild distributional assumption so ex post efficiency is achieved buyers strategies in this equilibrium are simple and do not depend on their beliefs about other buyers valuations or the number of buyers and sellers

dual mechanism for an online retailer abstract while posted price and auction have typically been seen as alternatives to each other we observe web stores selling a product at a posted price and simultaneously running auctions for the identical product a phenomenon that has not been studied fully in this article we study a dual mechanism where an online retailer combines the two conventional mechanisms posted price and auction for multiple units of a product we demonstrate that the dual mechanism can be used to achieve market segmentation when customers discount the expected utility of auctions we characterize the customer s decision rule and formulate a retailer s profit function under the dual mechanism finally we compare the performance of three selling mechanisms posted price auction and dual through computational experiments

the sunk cost fallacy in penny auctions this article theoretically and empirically analyses behaviour in penny auctions a relatively new auction mechanism as in the us dollars or war of attrition players in penny auctions commit higher non refundable costs as the auction continues and only win if all other players stop bidding i first show that in any equilibria that does not end immediately players bid probabilistically such that the expected profit from every bid is zero then using two large data sets covering 166 000 auctions i calculate that average profit margins actually exceed 50 to explain this deviation i incorporate a sunk cost fallacy into the theoretical model to generate a set of predictions about hazard rates and player behaviour which i confirm empirically while players do slowly learn to correct this bias and there are few obvious barriers to competition activity in the market is rising and concentration remains relatively high

ebay s crowded evenings competition neglect in market entry decisions do firms neglect competition when making entry decisions this paper addresses this question analyzing the time of day at which ebay sellers set their auctions to end consistent with competition neglect it is found that i a disproportionate share of auctions end during peak bidding hours ii such hours exhibit lower selling rates and prices and iii peak listing is more prevalent among sellers likely to have chosen ending time strategically suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness the results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior

charity as a substitute for reputation evidence from an online marketplace consumers respond positively to products tied to charity particularly from sellers that are relatively new and hence have limited alternative means for assuring quality we establish this result using data from a diverse group of ebay sellers who experiment with charity by varying the presence of a donation in a set of otherwise matched product listings most of charity s benefits accrue to sellers without extensive ebay histories consistent with charity serving as a quality signal we find fewer customer complaints among charity intensive sellers

pennies from ebay the determinants of price in online auctions this paper presents an exploratory analysis of the determinants of prices in online auctions for collectible united states one cent coins at the ebay web site starting with an initial data set of 20 000 auctions we perform regression analysis on a restricted sample of 461 coins for which we obtained estimates of book value we have three major findings first a seller s feedback ratings reported by other ebay users have a measurable effect on her auction prices negative feedback ratings have a much greater effect than positive feedback ratings do second minimum bids and reserve prices have positive effects on the final auction price in particular minimum bids appear only to have a significant effect when they are binding on a single bidder as predicted by theory third when a seller chooses to have her auction last for a longer period of days this significantly increases the auction price on average

disability adjusted life years a critical review abstract the disability adjusted life year daly has emerged in the international health policy lexicon as a new measure of the burden of disease we argue that the conceptual and technical basis for dalys is flawed and its assumptions and value judgements are open to serious question in particular the implications of age weighting and discounting are found to be unacceptable moreover the proponents of dalys do not distinguish between the exercises of measuring the burden of disease and of allocating resources but the appropriate information sets for the two exercises are quite different allocating resources by aggregate daly minimization is shown to be inequitable

the dynamics of seller reputation evidence from ebay we construct a panel of ebay seller histories and examine the importance of ebay s reputation mechanism we find that when a seller first receives negative feedback his weekly sales rate drops from a positive 7 to a negative 7 subsequent negative feedback ratings arrive 25 more rapidly than the first one and don t have nearly as much impact as the first one we also find that a seller is more likely to exit the lower his reputation is and that just before exiting sellers receive more negative feedback than their lifetime average we consider a series of theoretical models and measure them against these empirical results regardless of which theoretical model best explains the data an important conclusion of our paper is that ebay s reputation system gives way to noticeable strategic responses from both buyers and sellers

competition among sellers who offer auctions instead of prices abstract in this paper we study a large market in which sellers compete by offering auctions to buyers instead of simple fixed price contracts two variants of the model are studied one extends a model first analyzed by wolinsky rev econ stud 55 1988 71 84 in which buyers learn their valuations only after meeting sellers the other variant extends the model of mcafee econometrica61 1993 1281 1312 in which buyers know their valuations before they choose among available auctions the equilibrium array of auctions is characterized for each case and the efficiency properties of the equilibria are analyzed journal of economic literatureclassification numbers d41 d44 d82

bidding behavior in competing auctions evidence from ebay much of the existing auction literature treats auctions as running independently of one another with each bidder choosing to participate in only one auction however in many online auctions a number of substitutable goods are auctioned concurrently and bidders can bid on several auctions at the same time recent theoretical research shows how bidders can gain from the existence of competing auctions the current paper providing the first empirical evidence in support of competing auctions theory using online auctions data from ebay our results indicate that a significant proportion of bidders do bid across competing auctions and that bidders tend to submit bids on auctions with the lowest standing bid as the theory predicts the paper also shows that winning bidders who cross bid pay lower prices on average than winning bidders who do not

explaining and forecasting online auction prices and their dynamics using functional data analysis online auctions have become increasingly popular in recent years and as a consequence there is a growing body of empirical research on this topic most of that research treats data from online auctions as cross sectional and consequently ignores the changing dynamics that occur during an auction in this article we take a different look at online auctions and propose to study an auction s price evolution and associated price dynamics specifically we develop a dynamic forecasting system to predict the price of an ongoing auction by dynamic we mean that the model can predict the price of an auction in progress and can update its prediction based on newly arriving information forecasting price in online auctions is challenging because traditional forecasting methods cannot adequately account for two features of online auction data 1 the unequal spacing of bids and 2 the changing dynamics of price and bidding throughout the auction our dynamic forecasting model accounts for these special featur

face value information and signaling in an illegal market author affiliation trevon d logan the ohio state university and nber 410 arps hall 1945 north high street columbus oh 43210 usa e mail logan 155 osu edu corresponding author manisha shah dagger university of california los angeles and nber 3250 public affairs building los angeles ca 91195 e mail manishashah ucla edu acknowledgment we would like to thank george akerlof rodney j andrews raj arunachalam andrea a cann lisa d cook brahima coulibaly scott cunningham angus deaton avinash dixit claudia d goldin karla hoff joseph kaboski simon loertscher joseph m newhard christina paxson john pepper ruth peterson patricia reagan seth sanders ebonya washington nathan woodfork three anonymous referees and numerous seminar participants who provided helpful suggestions the usual disclaimer applies 1 introductionformal enforcement is often seen as the cornerstone of contract design while information can overcome the problems of asymmetric information akerlof 1970 spence 1973 principals are unlikely to engage agents unless the information conveyed is credible and verifiable while the use of formal institutions such as courts is rare relative to the volume of transactions the standard argument is that the presence of formal institutions gives contracts their authority in schelling s 1960 classic terminology the power to sue and be sued gives parties the ability to make credible enforceable commitments a prerequisite to most transactions without means of redress the information that principals and agents share would a priori have little value numerous studies have documented how informal networks long term relationships and reputations overcome problems of asymmetric information indeed researchers have developed large literatures that look at limited contractibility hart 1995 tirole 1999 and situations in which formal enforcement is costly greif 1993 to consider the additional mechanisms that must be in place if existing institutions are lacking or unable to mediate disputes however the literature has not developed an empirical answer to whether the value of information without formal enforcement approaches its value when formal enforcement is present in this article we ask two questions i are formal enforcement mechanisms necessary for the information that principals and agents share to have value ii if not then what is the value of information in an environment without formal enforcement ideally we would like to analyze an illegal market to answer these questions illegal markets rule out the possibility that market function or variation in the information environment is due to the presence of formal enforcement similarly in an illegal market the information that principals and agents convey to one another may not be credible or verifiable and misrepresentation is not likely to be punished the problem is that most illegal markets have coarse information environments it is therefore challenging to obtain information on prices quantities and consumer and producer behavior making empirical answers to these questions especially difficult we overcome these problems by analyzing an illegal market with a rich information structure the online market for male sex work we begin with a general description of this seldom studied market we then document the ways in which the clients of male sex workers informally police the market by informing other clients of deceptive sex workers and by reviewing sex workers on independent client owned web sites the informal policing in the market raises the cost of misrepresentation for would be fraudulent escorts and rewards the truthful self disclosure of honest escorts encouraging truthful self disclosure we further exploit this institutional knowledge to identify the specific information clients treat as signals of escort quality

the bidder s curse comment the prices of auctions on ebay often exceed ebay s fixed price buyit now prices i investigate the causes of this overbidding focusing on the interpretation in malmendier and lee 2011 that the observed overbidding cannot be explained without allowing for nonstandard preferences or beliefs and that the strongest direct evidence points to limited attention using data from their study and new data from ebay i provide evidence that a key condition for identifying nonstandard behavior may not have been met and that the observed overbidding is not inconsistent with standard behavior once we allow for the likely presence of search costs jel d12 d44 d83 the large literature on price dispersion has identified search costs as a primary explanation for the ubiquitous failure of the law of one price while many expected the internet to reduce search costs and consequently price dispersion empirical work has found that price dispersion continues to be widespread even as commerce has shifted online see baye morgan and scholten 2006 for a survey of the literature adding to this evidence malmendier and lee 2011 henceforth ml found that auction ending prices on ebay often exceed ebay s fixed price buy it now bin prices ml examined 167 auctions for the cashflow 101 board game and 1 931 auctions for a cross section of products such as books and consumer electronics in 42 percent of the cashflow 101 auctions the ending price exceeded the lowest contemporaneous bin price and the mean auction ending price was 0 28 above the mean low bin price showing generalizability the authors reported that in 48 percent of the cross section auctions the ending price exceeded the low bin price and the mean net overpayment was 10 percent 1

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

effective incomplete contracts and milestones in market distant r d collaboration abstract r d outsourcing is often conducted during the early market distant stages of the innovation process however the main obstacle to this potentially efficient interfirm specialization is the high danger of moral hazard most organizational mechanisms fail to control that type of opportunism because of information asymmetries even ex post in the theory of incomplete contracts this problem is mitigated by assigning the control rights to the supplier to date empirical studies have mainly investigated the interfirm distribution of the control rights however we do not know yet which concrete control right is crucial with regard to supplier opportunism which is the decisive dependent variable our study addresses this research gap for the first time we extend the empirical focus from biotechnology and pharmaceutical firm alliances to a cross industry sample of 113 collaboration cases the results show the effectiveness of contracts that ex ante assign patent ownership rights to the supplier the findings are also relevant for management practice because the majority of practitioners do not use this contract type yet although there is no sign of an effective alternative

on absolute auctions and secret reserve prices from a theory viewpoint the use of auctions with zero public reserve prices also called absolute auctions or of auctions with secret reserve prices is somewhat puzzling despite being common by allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret we show in a competitive environment that these auction formats may endogenously emerge we also analyze how buyers with various sophistications and sellers with various costs sort into the different formats thereby offering a range of testable predictions alternative approaches are reviewed

collusion and the choice of auction auctions are used in many different markets including the leasing of a substantial fraction of the natural resources in the united states the procedures used in the auctions conducted by the federal government have been a continuing source of controversy one of the concerns has been the possibility of collusion among bidders this article shows that cartels are stable if the seller uses open ascending bid oral auctions but not if he uses sealed high bid auctions this may help to explain the frequent use of sealed high bid auctions

empirical evidence on the impact of reserve prices in english auctions we study the impact of reserve prices on the revenue of english auctions using a unique hand collected database of virtual football players from the online football management game hattrick as theoretically predicted setting a reserve price entails a trade off between the cost of setting it too high and having the good go unsold and the benefit associated with a higher revenue should the reserve price successfully extract surplus from the highest bidder overall we find the net benefit of setting a higher reserve price to be negative regardless of the value of the reserve price this is a novel result insofar as previous literature has generally found an insignificant or positive effect of the reserve price on unconditional auction revenue

identification of standard auction models this paper presents new identification results for models of first price second price ascending english and descending dutch auctions we consider a general specification of the latent demand and information structure nesting both private values and common values models and allowing correlated types as well as ex ante asymmetry we address identification of a series of nested models and derive testable restrictions enabling discrimination between models on the basis of observed data the simplest model symmetric independent private values is nonparametrically identified even if only the transaction price from each auction is observed for richer models identification and testable restrictions may be obtained when additional information of one or more of the following types is available i the identity of the winning bidder or other bidders ii one or more bids in addition to the transaction price iii exogenous variation in the number of bidders iv bidder specific covariates while many private values pv models are nonparametrically identified and testable with commonly available data identification of common values cv models requires stringent assumptions nonetheless the pv model can be tested against the cv alternative even when neither model is identified

estimation of beauty contest auctions beauty contests are auction mechanisms used to buy or sell differentiated products where the auctioneer does not specify a decision rule to pick the winning bidder beauty contests are widely used in procuring welfare to work projects freelance services selling online ads real estate transactions and hiring dating marriage decisions unlike price only auctions beauty contests have no closed form bidding strategies and suffer from nonmultiplicatively separable unobserved auction heterogeneity which makes their estimation challenging to address these challenges we formulate beauty contests as incomplete information games and present a two step estimator a key contribution of our method is its ability to account for common knowledge auction specific unobservables using finite unobserved types we show that unobserved auction types and distributions of bids are nonparametrically identified and recoverable in the first step using a nonparametric expectation maximization em like algorithm and that

reputation in an internet auction market i introduction without transmission of credible information asymmetries may lead to underproduction of goods or even market failure reputation mitigates inefficiencies associated with information asymmetries by providing an informative signal of quality 1 the difficulty in quantifying reputation means that few studies can analyze empirically the role of reputation in markets our analysis of a quantified market observed measure of reputation provides direct evidence of the effect of a seller s reputation on the terms of a onetime real world transaction thereby contributing empirical support to a fundamental economic principle this study empirically examines person to person transactions within the internet market known as ebay in this virtual market of unseen participants and products buyers and sellers face the risks of repudiation as the counter party may deny the agreement after the fact buyers assume risks associated with lack of seller integrity and asymmetric information about the particular product as the buyer is typically required to send payment before the seller ships the product in addition for many ebay transactions the cost of enforcing a contract is high relative to the transaction s value resulting in a practical absence of legal enforcement 2 by providing a history of trade execution information ebay benefits market participants by reducing information asymmetries while achieving substantial transaction cost economies market participants relate personal experiences which ebay uses to calculate a numerical reputation measure for each user market participants in turn can use this reputation measure to assess counter party risk and adjust bidding behavior accordingly in a sample of 460 auctions held between january 1998 and july 1998 we find a positive relation between prices and ebay s reputation measure higher reputation sellers experience higher auction prices ceteris paribus our findings suggest that repeat players are rewarded for building reputation consistent with the belief that the high reputation seller s value of future transactions outweighs the value of taking advantage of the buyer in the current transaction buyers are willing to pay more to a higher reputation seller this article contributes to the literature not only by providing quantitative support of long accepted reputation theories but also by illustrating the use of nontraditional markets as a natural laboratory for experiments this article is an example of how a newly formed electronic market can provide the elements necessary for analytical research we find that ebay transactions for this item exhibit characteristics similar to transactions in more conventional markets namely 1 prices are higher when there is less quantity supplied when fewer of the items are available the same day 2 prices are lower during periods of lower demand times less likely to have high traffic 3 sellers with higher shipping and handling costs receive lower prices and 4 sellers failing to provide information about shipping and handling fees i e larger information asymmetries receive fewer bids dramatic innovations in online market structure and increasing availability of online market data should enable researchers to examine directly other traditionally non quantifiable economic ideas this article is organized as follows section ii describes how reputation can be used to facilitate transactions in the presence of asymmetric information section iii describes the ebay market summarizes the listing and bidding processes and discusses the reputation mechanism for this market section iv presents the price and reputation descriptive statistics associated with a consistently auctioned item and reports the empirical findings of how this item s highest bid price varies with the level of the seller s reputation we conclude in section v with a discussion of ebay s continued attempts to add value to the market through recent structural changes

the sound of silence in online feedback estimating trading risks in the presence of reporting bias most online feedback mechanisms rely on voluntary reporting of privately observed outcomes this introduces the potential for reporting bias a situation where traders exhibit different propensities to report different outcome types to the system unless properly accounted for reporting bias may severely distort the distribution of public feedback relative to the underlying distribution of private transaction outcomes and thus hamper the reliability of feedback mechanisms this study offers a method that allows users of feedback mechanisms where both partners of a bilateral exchange are allowed to report their satisfaction to see through the distortions introduced by reporting bias and derive unbiased estimates of the underlying distribution of privately observed outcomes a key aspect of our method lies in extracting information from the number of transactions where one or both trading partners choose to remain silent we apply our method to a large data set of ebay feedback our results support the widespread belief that ebay traders are more likely to post feedback when satisfied than when dissatisfied and are consistent with the presence of positive and negative reciprocation among ebay traders most importantly our analysis derives unbiased estimates of the risks that are associated with trading on ebay that we believe are more realistic than those suggested by a naive interpretation of the unusually high 99 levels of positive feedback currently found on that system

sealed bid versus open auctions the evidence data from u s forest service timber auctions are used to test vickrey s original proposition that sealed bid and open auctions yield equal revenue models for the high bid in an auction are specified and estimated using three different procedures ordinary least squares two stage least squares and maximum likelihood the second two procedures include a second equation which accounts for the forest service s auction choice and therefore control for selection bias these two procedures which unlike ordinary least squares yield consistent estimators imply a statistically and economically insignificant difference in high bids between sealed bid and open auctions

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

bidding off the wall why reserve prices may be kept secret abstract this note shows by means of an example that in a common value auction a seller with a random reservation value can increase her ex ante expected profits by following a policy of conducting an auction in which her reserve price is kept secret compared to an auction in which the reserve price is announced by keeping the reserve price secret the seller is able to encourage greater participation from the bidders and can therefore increase the linkage of the price paid to the value of the purchased object journal of economic literature classification numbers d82 d44

vickrey auctions in practice from nineteenth century philately to twenty first century e commerce william vickrey 1961 proposed an auction mechanism in which bidders submit sealed bids and the highest bidder wins the good in return for payment of the second highest bid amount for decades economists have credited vickrey with inventing this auction format and have believed that the vickrey auction is rarely used in practice this paper presents evidence that vickrey auctions have long been the predominant auction format for mail sales of collectible postage stamps stamp auctioneers developed this auction format on their own as early as 1893 even before vickrey was born

arriving in time estimation of english auctions with a stochastic number of bidders we develop a new econometric approach for the estimation of second price ascending bid auctions with a stochastic number of bidders our empirical framework considers the arrival process of new bidders as well as the distribution of bidders valuations of objects being auctioned by observing the timing of bidder arrival the model is identified even when the number of potential bidders is stochastic and unknown the relevance of our approach is illustrated with an empirical application using a unique dataset of art auctions on ebay our results suggest a higher impact of sellers reputation on bidders valuations than previously reported in cross sectional studies but the impact of reputation on bidder arrival is largely insignificant interestingly a seller s reputation impacts not only the actions of the bidders but the actions of the seller as well in particular experience and a good reputation increase the probability of a seller posting items for sale on longer lasting auctions which we find inc

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices