Reference Price Shifts and Customer Antagonism: Evidence from Reviews for Online Auctions

Abstract

This paper investigates how bidders in an auction become antagonized over their successful bid. Using data from a large-scale sales campaign on eBay shows that auction buyers use the platform's feedback system to punish the seller when they discover that the same item is later offered for a lower fixed price. Specifically, it finds that (i) the probability of receiving unfavorable feedback is four times larger for auction sales than when the same item is sold by the same seller for the fixed price and (ii) that this probability is increasing in the auction price, even though reviewing bidders shape this price themselves. Exploiting a temporal variation in how salient the fixed-price offer was and using text analysis tools on buyer comments shows that these effects on feedback are best explained by ex post reference-price shifts. An additional survey experiment with exogenous variation in reference prices provides further evidence for this channel.