The effect of surcharge on price in online auctions

We examine auctions for identical items with different surcharges. We find an inverted U-shape relationship between the surcharge amount and the price premium for the auction with the higher surcharge. To explain this pattern, we fit an empirical model with a two-stage process for the consideration of surcharges. In the first stage, consumers choose between two identical auctions, and in the second stage, they determine whether to place a bid. Using a novel online auction dataset that includes search and bids, we find the determinants of both search and bid, and map the relationship between surcharge and expected revenue. We note that the optimal surcharge changes inversely with bidders' level of experience and the expected number of bidders. The findings show conditions under which consumers fail to accurately process price and surcharge differences.

Automated summary

This study examines auctions for identical items with different surcharges and finds an inverted U-shaped relationship between the surcharge amount and the price premium. By fitting an empirical model with a two-stage process, the study explores the determinants of both search and bid in consumer decision-making and maps the relationship between surcharge and expected revenue. The findings highlight the conditions under which consumers fail to accurately process price and surcharge differences.