Engelmann, Dirk (HU Berlin)
Frank, Jeff (Royal Holloway, University of London)
Koch, Alexander K. (Aarhus University)
Valente, Marieta (University of Minho)
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.
auctions; default; reputation; second-chance offers
D44; C91; L14; D83