/Study reveals major downside to having more bidders at auction

Study reveals major downside to having more bidders at auction

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A packed out auction in Annandale — sellers are not always better off getting more bidders to register, a new study shows. Picture: Monique Harmer

Getting more bidders to register for an auction may not be better for sellers — people bid less in auctions where there are more rival bidders, new research suggests.

The University of Sydney and University of Technology of Sydney study suggested more bidders lowered each individual bidder’s perceived probability of winning.

This had a demotivating effect on their desire to win, resulting in fewer bids.

Associate professor at the University of Sydney’s School of Economics and co-author Agnieszka Tymula said it was a “counterintuitive finding”.

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“Usually auctioneers would assume that the more bidders there are in an auction, the more money they will make — the logic being that the more bidders there are, the more likely it is that there is a bidder with a high willingness to pay for the good,” she said.

“However, it turns out that there is also a downside to having more bidders — most people bid less.”

The researchers’ conclusions were drawn from an experiment where they asked nearly 100 adults to bid on items of varying value — including clothing, movie tickets and more.

The participants tended to bid less in auctions as the number of other bidders increased.

More than half of the participants changed their bids in response to an increase in the number of rivals.

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Co-author Dr Antonio Rosato of UTS Business School said that the average bid declined by about 7 per cent when the number of bidders increased from three to 12.

“Our findings are consistent with ‘loss aversion’ — the idea that people dislike losses more than they like equal-size gains,” Mr Rosato said.

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Auctioneer Gavin Croft at an auction that attracted a huge crowd of prospective buyers.

“When the number of bidders increase, participants experience this lower chance of winning as a loss and this reduces their willingness to pay.”

Trying to attract more bidders to auction could backfire, Ms Tymula added.

“In real-life, the auctions that attract many bidders are usually those auctions for better properties — and they will therefore generate higher bids just because the property is of higher quality,” she said.

“Many real estate agents infer from this that more people at an auction, the higher the final bid is going to be, so they try to get as many people as possible to their auction.

“Our results suggest that this actually plays against them because seeing many competitors at an auction makes bidders submit lower bids on average.”