Do Auctions Underestimate Consumer WTP? An Artefactual Field Experiment

Author(s)Wu, Shang
Author(s)Fooks, Jacob
Author(s)Messer, Kent D.
Author(s)Delaney, Deborah
Date Accessioned2015-10-13T16:19:16Z
Date Available2015-10-13T16:19:16Z
Publication Date2014-05
AbstractAuction experiments are commonly used to elicit consumer values for a wide range of items and services. These auctions are theoretically incentive compatible so are assumed to give an unbiased estimate of consumers’ willingness to pay (WTP). However, the vast majority of consumer decisions are made not in auctions but in posted-price settings, such as grocery stores. This study tests whether the two mechanisms yield similar WTP estimates by comparing WTP for honey from a second-price Vickrey auction and the WTP from a posted-price dichotomous-choice mechanism in a within-subject, homegrown-value setting. Results from 115 adult consumers indicate that estimates of WTP generated by an auction are approximately 50% smaller than WTP estimates generated by a posted-price mechanism. We test several potential explanations for this difference in behavior and find no evidence of anchoring or yea-saying effects. The evidence does suggest that the framing of choice in an auction format and a lack of familiarity with auctions are the most plausible explanation for this downward bias.en_US
URLhttp://udspace.udel.edu/handle/19716/17147
Languageen_USen_US
PublisherDepartment of Applied Economics and Statistics, University of Delaware, Newark, DE.en_US
Part of SeriesRR14-07
KeywordsConsumer demanden_US
KeywordsWillingness-to-payen_US
KeywordsAuction experimentsen_US
KeywordsPosted price mechanismen_US
KeywordsHomegrown valuesen_US
TitleDo Auctions Underestimate Consumer WTP? An Artefactual Field Experimenten_US
TypeResearch Reporten_US
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