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Could Online Auction Be the Remedy for Auction Fever?

Without a doubt, internet has had a significant, if not a monumental, impact on auctions. Auctions couple decades ago were generally only held for valuable or rare goods such as fine piece of artworks or classy wines that are couple hundred years old (as mentioned in class). However, due to the amount of ease online auction offers, all kinds of goods are also being auctioned. Also, it isn’t only the items being auctioned that have changed. The participants in the auction have also transformed drastically since the introduction of online auctioning. Besides the biggest convenience that people don’t have to be physically present in order to participate in the auction, online auction attract a significantly greater number of audience due to increase in information and transparency of the item being auction. According to Allison Enright, the editor for InternetRetailer, of the 79% of all U.S. adults who go online, 66% buy from e-retailers. The online auction industry has significantly expanded, without a doubt. Is this good or bad news for auctioners?

While browsing and researching for possible topics for this post, I observed that it is common phenomenon that people participating in auctions result in bidding at a higher price than they originally intended. The strategy in an ascending bid auction described in class was to continue bidding for the item until the value of the item to the person (v) is greater than the current bidding price for the item (b). This all sounds very simple and clear: keep bidding until v > b. However, according to a study done by Professor Wolf in Ohio State University, in midst of the auction process, the value v changes, making equation a bit more difficult.

In the study, Professor Wolf explains how overbidding due to auction fever result in two psychological factors. The first factor is competitive arousal: bidders can get competitive with the other bidders and bid past their valuation of the item. For instance, even if the bidder saw the auctioned item at a value v  prior to the auction, once another bidder starts competing for the same item, both bidders suddenly have a higher value of v because the pride in beating a competitor now adds to the value of winning the auction. In addition, even if the bidder doesn’t get the pride in winning the auction, he or she can get a satisfaction from making the competing bidder pay more for the item. The second factor is pseudo-endowment: bidders become attached to the item during the auctioning process. During the auctioning period, the current highest bidder perceives the item as his or hers, and thus gets defensive over the item when another bidder bids to take their ‘possession’ away from them.These factors or auction fever led professor Wolf to ask “Do auction bidders “really” want to win the item, or do they simply want to win?

Competitive arousal and pseudo-endowment, however, could have much less effect in the online auction setting. First when bidders are not pitted against each other in the same stressful environment of an auction house, competitive arousal will be mitigated. The competing bidder’s physical presence may contribute heavily to the competitive arousal, especially if they are the last two remaining bidders. Online auctioning, however, removes this stressful environment by allowing the bidders to bid by simply clicking a mouse in front of their computers at their own homes. Generally, no physical interaction or signals can be exchanged between the bidders and thus will reduce competitive arousal. In additional, bidders will feel less of a possession to the item when they place bids online. To not have the item right in front of the bidder, out of their sights and physical presence, could make the item less ‘closely attached’ to the bidders and reduce pseudo-endowment. Overall, the online auction could be the remedy certain bidders need to cool down their auction fever.

Mark.

resources: http://fisher.osu.edu/~muhanna_1/pdf/Do%20AuctionWin-jcr07.pdf

http://www.internetretailer.com/2010/12/16/two-thirds-online-adults-shop-web

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