Auction versus Posted Price in Experiments: Comparisons of Mean and Marginal Effect

Author(s)Wu, Shang
Author(s)Fooks, Jacob
Author(s)Li, Tongzhe
Author(s)Messer, Kent D.
Author(s)Delaney, Deborah
Date Accessioned2017-06-07T18:38:16Z
Date Available2017-06-07T18:38:16Z
Publication Date2017-06
AbstractEconomic experiments have been widely used to elicit individuals’ evaluation for various commodities and non-market goods. Common elicitation methods include auctions and posted price mechanisms. Experimental auctions are theoretically incentive compatible so are assumed to give an unbiased estimate of individuals’ evaluation including willingness to pay (WTP). However, the vast majority of purchasing decisions are not made in auctions but in market settings, such as grocery stores, where consumers make yes/no decisions in response to a set price. In this research, we carefully design an experiment to compare homegrown-value WTP estimates between an auction and a posted price elicitation format. This design enables us to make both within- and between-subjects comparisons of the mean WTP and marginal effect estimates. Results from 115 adult consumers indicate that WTP estimates obtained from an auction are approximately 32% - 39% smaller than WTP estimates obtained from a posted price mechanism. In addition, we compare the statistical significance and conclude that auctions require a smaller sample size than posted price mechanisms in order to detect the same preference change. Nevertheless, the signs of marginal effects for different product characteristics are consistent in both mechanisms.en_US
URLhttp://udspace.udel.edu/handle/19716/21437
PublisherDepartment of Applied Economics and Statistics, University of Delaware, Newark, DE.en_US
Part of SeriesAPEC Research Reports;RR17-05
KeywordsAuction experimentsen_US
KeywordsEconomic evaluationen_US
KeywordsHomegrown valuesen_US
KeywordsPosted price marketsen_US
KeywordsWillingness to payen_US
TitleAuction versus Posted Price in Experiments: Comparisons of Mean and Marginal Effecten_US
TypeWorking Paperen_US
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