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Fearless Idea 10: Be a Savvy Bidder

Mar 10, 2017
World Class Faculty & Research

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SMITH BRAIN TRUST — With lenient return policies common, about 9 percent of purchases at brick-and-mortar stores are returned and 25 percent to 30 percent of online orders are sent back yearly in the United States. Where do these items end up? In many cases, the likes of market vendors, wholesale liquidators, eBay Power sellers, and "mom and pop" stores purchase the goods via online auctions and resell the merchandise. The process contributes to big retailers recouping up to 25 percent of an item’s original cost to offset about $260.5 billion per year industrywide in lost sales.

New research from the University of Maryland’s Robert H. Smith School of Business examines a key influencer — the level of bidder experience and savvy — to the bidding process and final sales price. “Bidder inexperience works to benefit the auctioneer and retailer that’s recouping the value of its liquidated products,” says Smith School professor Wedad J. Elmaghraby, co-author of the study with Smith faculty colleague Anandasivam Gopal and 2013 Smith PhD graduate Ali Pilehvar.

The study focuses on liquidated consumer electronics items auctioned and sold “as is” in up-to-1,000 item, noninspectable bundles. As first bidders set the auction tone and trajectory toward final prices, Elmaghraby says, “we find first-bidders with low experience tend to bid smaller, but early.” This spurs other bidders, which increases auction activity and drives up final prices.

But when the low-experience bidder hesitates, Elmaghraby says, the more experienced counterpart tends to come in with a high bid, which influences subsequent low bidding activity and relatively low final sales prices.

Most bidders do their homework to properly estimate the value of the goods by studying relatable, past auction data, Elmaghraby says. The savvy, “power bidders” — a low proportion of B2B auction bidders — tend to bid in multiple auctions concurrently and draw additional data from this “cross-bidding.” They further separate themselves by drawing insight from their own, more robust history of bidding. But their counterparts could close this gap, for example, by strategically monitoring ongoing auctions and just-closed auctions.

Read more: Market Information and Bidder Heterogeneity in Secondary Market Online B2B Auctions, by Elmaghraby, with Ali Pilehvar,  Ph.D. in Operations Management and Management Science (’13) and Anandasivam Gopal, associate professor of information systems, is forthcoming in Management Science.

Wedad J. Elmaghraby is an Associate Professor of Management Science in the Department of Management Science and Operations Management

Research interests: Business-to-Business procurement auctions and pricing that bridges economics and operations management. Her work incorporates themes of behavior, judgment heuristics, and biases in decision-making all with the aim of better understanding the behavioral influences in auctions and pricing decisions.

Selected accomplishments:  With 17 studies published in refereed journals, she has served as an area editor for MS, M&SOM and POMS journals and has been invited as keynote speaker for the Behavioral Operations Management International Symposium in Shanghai, China, as well as the Cologne (Germany) Workshop on Auctions and Procurement, and as a Fellow to the ESEI Market Design Center in Zurich, Switzerland.

About this series: The Smith School faculty is celebrating Women’s History Month 2017 in partnership with ADVANCE, an initiative to transform the University of Maryland by investing in a culture of inclusive excellence. Daily faculty spotlights support activities from the school’s Office of Diversity Initiatives, culminating with the sixth annual Women Leading Women forum on March 30, 2017.

Other fearless ideas from: Rajshree Agarwal  |  Ritu Agarwal  |  Leigh Anenson  |  Kathryn M. Bartol  |  Christine Beckman  |  Margrét Bjarnadóttir  |  M. Cecilia Bustamante  |  Rellie Derfler-Rozin  |  Waverly Ding  |  Wedad J. Elmaghraby  |  Rosellina Ferraro  |  Rebecca Hann  |  Amna Kirmani  |  Hanna Lee  |  Hui Liao  |  Wendy W. Moe  |  Courtney Paulson  |  Louiqa Raschid  |  Rebecca Ratner  |  Rachelle Sampson  |  Debra L. Shapiro  |  Cynthia Kay Stevens  |  M. Susan Taylor  |  Vijaya Venkataramani  |  Janet Wagner  |  Yajin Wang  |  Yajun Wang  |  Liu Yang  |  Jie Zhang  |  Lingling Zhang  |  PhD Candidates

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About the University of Maryland's Robert H. Smith School of Business 

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty masters, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.