Shill Bidding, Reserve Price and Seller’s Revenue

 CV：Upload/File/2018/5/20180510040811902.pdf

Abstract: Low reserve price has been shown in some empirical literature to be surprisingly effective in online auction, in that it results in greater revenue than a reserve price that is consistent with theoretical prediction. However, literature has also points out that sellers who practice shill bidding also start with low reserve price. This raises the question of whether this empirical result is for real, or just an illusion mainly caused by shill bidding. Using data from eBay motors, this paper empirically reinvestigates the effect of reserve price on seller’s revenue, taking into account the possible influence of shill bidding. We first construct a shill score for each listing, then estimate the trade probability and transaction price, taking into consideration the influence of possible shill bidding. Our result indicates that shill bid increases trade probability and transaction, a result consistent with the purpose of shill bidding. Despite this, we still find that an increase in reserve price decreases trade probability and increases transaction price and, more importantly, starting an auction with low reserve price results in higher expected revenue. Our empirical result also rejects the theoretical prediction (Bose and Daripa, 2017) that shill bids only occur as the last minute bids.