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AUCTION FEVER THE EFFECT OF OPPONENTS AND QUASI ENDOWMENT ON PRODUCT VALUATIONS JAMES E HEYMAN YESIM ORHUN AND DAN ARIELY T JAMES E HEYMAN AND he wide adoption of dynamic second price auctions as the format of YESIM ORHUN choice for Internet based online transactions has created an interest in are Ph D students at the Haas School understanding how individuals behave in such environments The current of Business University of California at work concentrates on two dynamic effects which we call quasi endowment Berkeley and opponent effect and finds that these effects may result in over bidding The results of two experimental auctions one involving hypothetical bids DAN ARIELY and the other real money bids demonstrate that bids reflect valuations that is the Louis Alvarez Renta Professor of include the nonnormative influences of the two factors Quasi endowment Management Science at MIT s Sloan and opponent effects could lead to the behaviors of repeated bidding and School e mail ariely mit edu sniping commonly observed in second price online auctions such as eBay The authors thank Itamar Simonson 2004 Wiley Periodicals Inc and Direct Marketing Educational Foundation Inc Uri Simonsohn Stacy Woods Dina Mayzlin Ali Hortacsu and Robert JOURNAL OF INTERACTIVE MARKETING VOLUME 18 NUMBER 4 AUTUMN 2004 Published online in Wiley InterScience www interscience wiley com DOI 10 1002 dir 20020 Zeithammer for their stimulating discussions concerning this project 7 INTRODUCTION At 4 minutes to 7 00 on January 5 a 7 day eBay auction for an Olympus SLR IS 3 DLX camera ended This was a typical auction with 10 different bidders each placing between one and five bids The person with the user name Belab submitted five proxy bids starting with one for 50 00 on the second day of the auction and culminating with a final bid of 306 00 placed 15 seconds before the end of the auction a pattern of bidding called sniping The example of Belab is interesting because it demonstrates the complexity and richness of behaviors in online auctions such as those hosted by eBay Belab s behavior is not an individual anomaly In fact multiple bidding and sniping are more the rule than the exception Ariely Simonson 2003 Bajari Hortacsu 2003 2004 Hossain 2003 Ockenfels Roth forthcoming Rasmusen 2003 Roth Ockenfels 2002 The fact that this behavior is common raises the following questions Why do so many bidders submit multiple proxy bids over the course of a single second price auction Was Belab reacting rationally to new information gained from other bidders actions Was she over weighting the information she received EXHIBIT 1 8 from other bidders in the auction compared with the extensive amount of information available commercially about this particular camera Was she trying to conceal her true valuation in her early bids Was she trying to fool some of the other bidders Does this pattern of bidding have anything to do with the observation that more people join auctions toward their end Was her

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