Bidding Strategies and Consumer Savings in NYOP Auctions

We investigate how bidding strategies of successful bidders influence the savings they derive from a Name Your Own Price (NYOP) retailer relative to buying the same product from a retailer who posts prices. Utilizing bidding data for hotel room purchases we demonstrate that consumer savings rate depends positively on consumer decision to haggle (# bids ≥3) and on the shape of the bid function. Relative to non-hagglers (# bids ≤2), hagglers who employ a constant bid increment (i.e., a linear) strategy and a decreasing bid increment (i.e., concave) strategy save more, while those who employ an increasing bid increment strategy (i.e., convex) fare no better. A post hoc analysis also shows that hagglers place many bids in the pursuit of higher quality products, while non-hagglers save friction costs by sacrificing quality (e.g., targeting lower star hotels and adjusting the days of travel).

Figure optionsDownload as PowerPoint slideHighlights
► A majority of bidders in Priceline wins hotel rooms in just one or two bids.
► These bidders target lower star hotels and are willing to travel on unpopular days.
► These bidders derive lower savings rates than some but not all bidders who haggle more.
► Savings rates of these bidders are no less than hagglers who progressively raise the bid increments.