Bidding behavior in auctions versus posted prices: comparisons of mean and marginal effects

Abstract

Economic experiments have been widely used to elicit individuals' evaluation for various commodities. Common elicitation methods include auction and posted price mechanisms. A field experiment is designed to compare willingness-to-pay (WTP) estimates between these two mechanisms. Despite both of these formats being theoretically incentive compatible and demand revealing, results from 115 adult consumers indicate that WTP estimates obtained from an auction are 32–39 percent smaller than those from a posted price mechanism. A comparison in statistical significance shows 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.