With so many people buying and selling goods on online auction sites it may not actually be a benefit to everyone who buys those goods. Since almost all online auction sites are English Auctions the price starts low and the good ends up in the hands of the highest bidder. Everyone may think ok well if he/she bid on the item then the study of economics would tell us that if the person made the bid then it must be a good trade otherwise the consumer wouldn't have made the bid. Well there is one delema with auctions that can actually make someone trying to buy an item on an auction site worse off then if they bought it in the store. This is called Winners Curse. Winners curse happens when someone buys an item at an auction and actually overpays because they want to win the item. Here is an example of winners curse from the article I read.
"Paul Klemperer, an Oxford University economist who specializes in the economics of auctions, illustrates winner's curse to his students by auctioning off a jar with an undisclosed number of pennies. The students bid a little below their estimate of the jar's contents to leave a profit. Every time, though, the hapless winner of the jar is the student who overestimates the number of pennies by the greatest amount, and therefore overpays by the most."
Therefore the only way to avoid being a cursed winner is to do your homework check prices elsewhere of the good you want to bid on and make sure you don't over bid.
source:http://www.businessweek.com/2000/00_12/b3673131.htm
I know exactly what you and the article is talking about. I have some close friends who have this "curse" and they get so wrapped up in trying to win the auction, that they often times forget how much they are actually paying for it. When they win the auction, they get this great sense of joy, and I feel that it is almost an addiction to them.
ReplyDeleteThe winner's curse is a form of addiction. These people bet on an item and compete with others, while the price just keeps rising. Some people don't even necessarily want the item, they just want to win the bet! I also think this leads to betting on more than one item. They keep winning and start to feel powerful so they keep betting. This is a great way to blow through money quickly!
ReplyDeleteI have been buying things on eBay for a few years now and I have done my fair share of overbidding. I got caught up in winning the auction instead of thinking about buying the product. Luckily eBay now has the max bid feature so that consumers can input the maximum amount that they are willing to spend on the item and then they dont have to look at the auction again until it is closed. I have found this to be a great tool to help me not overspend when on the auction site.
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