Effect of Market Information on Bidders’ Attrition in Online Auction Markets

Abstract

Information generated in online markets can affect both buyers’ and sellers’ market expectations and therefore their choices. In this research, we investigate the effect of market information, generated in online auction markets, on buyers’ choices.. To clear inventories, sellers often conduct many auctions selling identical items over time, creating an online auction market. In these markets, bidders can participate in many auctions over a period of time, observe market information (supply, demand and competition), and gain experience to find bargains. We observe that despite having an opportunity to compete and win in future auctions, many bidders stop participating in these auction markets. We argue that observed market information affects their choices. We explore how bidders form expectations about market supply, demand and competition based on information from two sources – market mechanism and behavior of market participants. By employing a hierarchical Bayesian latent attrition model, we empirically detect and investigate the effect of bidders’ expected market supply, demand and competition on their attrition in these markets. Our study shows that effect of market information on attrition is nuanced by bidders’ value heterogeneity. In particular, we find that attrition behavior of high-value bidders is completely opposite to that of low-value bidders. We discuss practical implications of our findings.