Reserve prices as reference points – Evidence from auctions for football players at Hattrick.org

We study the impact of sellers’ reserve prices on transfer prices in online auctions of virtual football players at Hattrick.org. We introduce an empirical model that distinguishes between two separate effects from public reserve prices: (1) a mechanical effect, which is driven by the design of the English auction and (2) a psychological reference-dependence effect through reserve prices serving as reference points. The psychological effect has recently been introduced in behavioral models of situations where agents are uncertain about their own willingness-to-pay, while the mechanical effect is well captured by standard auction theory. Controlling for censoring when players are not sold, both effects are observed. Once we account for the potential endogeneity of reserve prices, however, we do not find evidence for reference dependence in Hattrick auctions.