How connection strength in a demographic network can have an effect on bidder aggressiveness.
As a frequent user of Ebay, I have found myself often overbidding on items that I want. Usually it ends up in a last minute bidding war with another anonymous user who always seems to manage to one up me by a dollar or two. Although at the time quite frustrating, I notice now that I would often bid much higher than my previously perceived value of the item, sometimes bidding up to 50-100 dollars more in the last minute of the auction. The scholarly article I found sheds light on this phenomena and shows how intimately connected social networks and auctions can be. The article details a study conducted by Rebecca Walker Nayler, assistant professor of marketing at Ohio State University. Nayler found that people become more aggressive bidders if they do not know the person they are bidding against. Even in a situation where the person was bidding against a person who was very dissimilar to themselves, they would bid at a lower amount than someone who was completely anonymous to themselves.
They conducted the experiment by asking college students to bid on a bottle of Five Hour Energy. According to the article, the participants who were bidding against someone that was demographically similar to themselves would have the lowest max bid, around 75 cents. When the participants were bidding against someone who was not as similar, their highest bid went up to $1.22. When participants bid against someone completely anonymous to them, the highest bid was $1.28. Whether a bidder’s perceived value on an item is increased, or they bid higher than their perceived value depending on who they are bidding against is not discussed. It is more likely, however, that bidders do end up bidding higher than their perceived value because the item is still exactly the same, the only change is their connection to the person they are bidding against. Either way, it still shines a light on human behavior and implies the possibilities of networks having an effect on bidder’s adherence to perceived values and bidder aggressiveness in auctions.
For online second price auction site like Ebay, it becomes obvious that it is more profitable to make all opponent bidding anonymous. By taking a quick glance at any auction on Ebay, you will find this to be true. Ebay has cleverly designed their auctions to prevent you from ever knowing exactly who you are bidding against. It’s impossible to find out their ebay name or where they are located, all you can see is their ebay rating. This clever tactic has likely raked Ebay in millions of extra dollars on their customer’s expense.
To summarize, how closely connected a bidder is to their opponent bidder has a direct effect on how much they are willing to bid, likely regardless of their true perceived value of the item. Someone with a strong edge to their opponent bidder will maximize their bid in an auction at a lower value than someone they have a weak edge too, and even less than someone who they have no connection to at all. This phenomena has been exploited by online auction companies like Ebay who have likely raked in many millions of extra dollars in revenue from auctions that likely ended at much higher values than they would’ve if the opponent bidder’s information was known. This shows the importance of social networks in human psychology and likely has a played a huge effect on auctions throughout history, whether it be a victorian era aristocrat bidding millions on a rare orchid from the far reaches of Borneo, or some collector today bidding on the latest limited edition beanie baby.
Source:
http://www.researchnews.osu.edu/archive/webcompete.htm