Bidding Strategies and Consumer Savings in NYOP Auctions

• Published in: Journal of retailing 2012-03, Vol.88 (1), p.180-188
• Main Authors: Joo, Mingyu, Mazumdar, Tridib, Raj, S.P.
• Format: Article
• Language: English
• Subjects: Auctions; Bargaining; Bidding strategy; Bids; Consumer behavior; Consumers; Cost control; Friction; Haggling; Hotels & motels; Name Your Own Price auction; NYOP retailers; Priceline; Prices; Product quality; Retail stores; Retailing; Reverse auction; Studies
• ISSN: 0022-4359; 1873-3271
• DOI: 10.1016/j.jretai.2011.07.004

[Display omitted] ► A majority of bidders in Priceline wins hotel rooms in just one or two bids. ► These bidders target lower star hotels and are willing to travel on unpopular days. ► These bidders derive lower savings rates than some but not all bidders who haggle more. ► Savings rates of these bidders are no less than hagglers who progressively raise the bid increments. We investigate how bidding strategies of successful bidders influence the savings they derive from a Name Your Own Price (NYOP) retailer relative to buying the same product from a retailer who posts prices. Utilizing bidding data for hotel room purchases we demonstrate that consumer savings rate depends positively on consumer decision to haggle (# bids ≥3) and on the shape of the bid function. Relative to non-hagglers (# bids ≤2), hagglers who employ a constant bid increment (i.e., a linear) strategy and a decreasing bid increment (i.e., concave) strategy save more, while those who employ an increasing bid increment strategy (i.e., convex) fare no better. A post hoc analysis also shows that hagglers place many bids in the pursuit of higher quality products, while non-hagglers save friction costs by sacrificing quality (e.g., targeting lower star hotels and adjusting the days of travel).