Faculty of Economics and Business Administration Publications Database

Bid-Elicitation Interfaces and Bidding Behavior in Retail Interactive Pricing

Spann, Martin
Häubl, Gerald
Bernhardt, Martin
Volume: 88
Number: 1
Pages: 131 - 144
Month: March
ISSN-Print: 0022-4359
Link External Source: Online Version
Year: 2012
Keywords: Electronic commerce; Interactive pricing; Bidding behavior; Name-your-own-price; Select-your-price; Laboratory experiment; Field experiment

Advances in information technology have led to a substantial increase in the use of interactivepricing mechanisms, where buyers (i.e., consumers) and sellers (i.e., retailers) enter a formal computer-mediated price-negotiation process during which consumers submit bids for a specific product. This article examines how the interface used for bidelicitation affects biddingbehavior and, ultimately, retailer profit. Our focus is on one key aspect of the bid-elicitationinterface – how retailers require bidders to articulate their bids. Evidence from four experiments involving economically consequential bids demonstrates that the candidate bid amounts specified by the retailer have a strong influence on biddingbehavior, and consequently also on retailer profit. In particular, the level of candidate bid amounts has a positive effect on actual bid amounts, whereas it has a negative impact on the likelihood that a consumer will actually submit a bid. Critically, we show that the former effect can more than offset the latter to cause an increase in retailer profit. We propose and find support for two distinct pathways driving this phenomenon – the candidate bid amounts (1) influence bidders’ valuations of the offered product and (2) shape bidders’ beliefs about what bid amounts will be successful. Our results highlight the importance of the design of user interfaces for interactivepricing, demonstrating that even seemingly innocuous aspects of interfaces can have a dramatic impact on biddingbehavior and retailer profit.