Author:
Engelmann, Dirk (HU Berlin)
Frank, Jeff (Royal Holloway, University of London)
Koch, Alexander K. (Aarhus University)
Valente, Marieta (University of Minho)
Abstract:
Winners in online auctions frequently fail to complete purchases. Major auction platforms therefore allow “second-chance” offers, where the runner-up bidder pays his own bid price, and they let sellers leave negative feedback on buyers who default. We show theoretically that (i) all else equal, the availability of second-chance offers reduces bids; (ii) sellers have no incentive to exclude bidders, even if they are nearly certain to default; (iii) buyer reputation systems reward bidders with a reputation for defaulting, counter to the idea of deterring such behavior. Our auction experiments support these predictions and provide insights on their practical relevance.
Keywords:
auctions; default; reputation; second-chance offers
JEL-Classification:
D44; C91; L14; D83