Second-chance offers and buyer reputation: Theory and evidence on auctions with default

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 237

Classification and Topics

• Classification: Wirtschaft ; Auctions ; Design of Experiments: Laboratory, Individual ; Transactional Relationships; Contracts and Reputation; Networks ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Auctions ; Default ; Reputation ; Second-Chance Offers

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Engelmann, Dirk ; Frank, Jeff ; Koch, Alexander K. ; Valente, Marieta
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
• (where): München und Berlin
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/222134
• Last update: 10.03.2025, 11:42 AM CET