Winner’s Curse Or Adverse Selection In Online Auctions: The Role Of Quality Uncertainty And Information Disclosure


Jianwei Hou
Ann Kuzma
John Kuzma


The literature has shown empirical evidence for both the winner’s curse and adverse selection in online auctions. Some researchers identify a higher online auction price than the offline/e-tailing market price for the same item, whereas others indicate the opposite. This remarkable inconsistency certainly demands further investigation. By using a controlled field experiment on a popular online auction site, this study was able to directly compare prices between online auctions and e-tailers. The experimental results indicate that both the winner’s curse and adverse selection exist in online auctions. The extent to which either occurs depends on the level of online bidders’ quality uncertainty about the auction item. This study also examined the role of information disclosure in determining the auction price. The results show that a cheap talk signal does not influence the price, while picture posting only affects price under a high level of quality uncertainty when there is no cheap talk signal. Implications and future research directions are discussed.

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Published Date: 

August, 2009

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