Response to Buyout Options in Internet Auctions

A buyout option allows a bidder to acquire an auctioned product immediately at a posted price without going through the hassle of monitoring the auction process and submitting bids. This study examines the influence of three forms of buyout options, namely, temporary without reserve price (TempNR) (i.e., option ceases to exist once the first bid is received), temporary with reserve price (TempR) (i.e., option ceases to exist once the bid received is equal to or more than the reserve price), and permanent (Perm) (i.e., option is available until the end of the auction or when a bidder chooses to buy out) on the decision of a bidder in Internet auctions. The first two auction forms can be labeled as temporary buyout options. By using two studies, we demonstrate that a bidder is more likely to be averse to losses and exhibits a higher propensity to buy out in the presence of Perm. However, when faced with temporary buyout options (i.e., TempNR or TempR), a bidder would prevent other bidders from prematurely ending the auction by attempting to “remove” the buyout option.