An empirical investigation of the auction buyer's choice to buy out or bid: Cry of regret or laugh of satisfaction?

Abstract

Online auction buyers often face the predicament of choosing between the buyout strategy and the bidding strategy to acquire an auctioned product. A buyer who chooses to buy out will obtain the item immediately at the posted price while the one who chooses to bid will have to monitor the bidding process in the hope of acquiring the product at a price lower than the posted one. Despite the wealth of auction literature, relatively few studies empirically assess the buyout option. This study seeks to bridge the gap by investigating how the buyout option (permanent or temporary) and price parameters (starting price and buyout price) affect the formation of two emotions, namely anticipated satisfaction of choice and anticipated regret of outcome, which in turn affect the buying strategy (i.e., buy out or bid). We employ laboratory experiments in our study and our results indicate two interesting findings. First, when the permanent buyout option is available, a buyer is more likely to exhibit loss aversion characteristics and prefer to adopt the buyout strategy. Second, when the temporary buyout option is present, the thought that one could avoid premature ending of auction by exercising the bidding option at the start decreases one's preference for adopting the buyout strategy. Implications of these results for further research and practice are discussed.