Bidding frenzy diagnosed

Eager buyers who get swept up in the excitement of an auction and end up regretting it can take some comfort in knowing why: bidding frenzy, a condition uncovered by University of Alberta researchers.

The more intense the bidding is at an auction, the more likely it is that a buyer will be gripped by bidding frenzy, said Dr. Peter Popkowski Leszczyc, a marketing professor at the University of Alberta School of Business. “It is a mental state characterized by a high level of arousal or excitement, a sense of competition, and a strong desire to win,” said Dr. Popkowski Leszczyc. “We believe greater levels of bidding frenzy will cause consumers to value an auctioned product more highly.” The research was presented recently in a paper at the 9th Behavioral Decision Research in Management Conference, hosted by the Fuqua School of Business at Duke University.

Bidding frenzy poses potential pitfalls for buyers, as logic loses out to human competitiveness, Dr. Popkowski Leszczyc said. “Recently an unknown painting sold online for 70,000 pounds after some bidders started a bidding war. The actual painting was probably worth about 100 pounds.” He believes that bidding frenzy is a similar problem to gambling addiction. “There is some similarity in the adrenaline rush of winning the auction, or even just the last-minute bidding. Some people spend hours a day online, purchasing hundreds of items a year.”

In the study, Dr. Popkowski Leszczyc and his colleague Dr. Gerald Haubl conducted five lab experiments comparing consumers’ online bidding behavior under two auction types: an open ascending bid (English) auction–the most common type where bidders compete directly; and sealed-bid auctions, in which bidders can only bid once, usually by writing it down. They discovered that items were more highly valued in the English auction format, as it allowed dynamic interaction among bidders with publicly available high bids. The study also revealed that both greater frequency of arrival of rival bids and a smaller perceived number of bidders lead to higher value being put on the auction item.

The study also showed that for bidding frenzy to take hold, an auction participant must be competing directly with other human bidders rather than with a pre-programmed electronic bidding agent.