Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222134
Authors: 
Engelmann, Dirk
Frank, Jeff
Koch, Alexander K.
Valente, Marieta
Year of Publication: 
2020
Series/Report no.: 
Discussion Paper 237
Abstract: 
Winners in online auctions frequently fail to complete purchases. Major auction platforms therefore allow "second-chance" offers, where the runner-up bidder pays his own bid price, and they let sellers leave negative feedback on buyers who default. We show theoretically that (i) all else equal, the availability of second-chance offers reduces bids; (ii) sellers have no incentive to exclude bidders, even if they are nearly certain to default; (iii) buyer reputation systems reward bidders with a reputation for defaulting, counter to the idea of deterring such behavior. Our auction experiments support these predictions and provide insights on their practical relevance.
Subjects: 
Auctions
Default
Reputation
Second-Chance Offers
JEL: 
D44
C91
L14
D83
Document Type: 
Working Paper

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