Price anchoring in online markets: an empirical assessment

There is a large literature in behavioral economics contradicting the empirical prediction of rational choice theory once applied to auctions. The issue is of particular relevance due to the large use of auctions in mechanism design. One of the heuristics that may induce biased behavior is anchoring, namely the possibility that uninformative information influences choices. In this article we assess the impact of the anchoring effect in bidding for online auctions. Our aim is to isolate the anchoring effect of fixed price listing from the strategic bidding effect. Our empirical strategy is to use market segmentation induced by the presence of counterfeit products. Our results confirm the importance of behavioral heuristics and associate biases in auction. In particular we find price effects on auctions from upper and lower bounds(ceiling and floor) of the fixed price distribution and across run time. The results are robust with regard to various formulations of the baseline regression.