Effect of Market Information on Bidder Attrition in Online Auction Markets

Information generated in online markets can affect both buyers’ and sellers’ expectations and therefore
their choices. In this research, we investigate the effect of market information, generated in online auction markets, on buyers’ expectations and choices. To clear large inventories, sellers often conduct many
auctions selling identical items over time, which creates an online auction market where competition
dynamics spill over from one to auction to another. 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 increase their payoffs. 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 design parameters 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 the effect of market information on attrition is
nuanced by bidders’ value heterogeneity. Through the lenses of behavioral economics theories, we show
that the attrition behavior of high-value bidders is completely opposite that of low-value bidders. We
discuss the practical implications of our findings.