The Effects of Reference Prices on Bidding Behavior in Interactive Pricing Mechanisms

We examine the effect of reference prices on consumer bidding behavior in interactive pricing mechanisms used in online retailing, e.g., auctions and name-your-own-price. We find significant influences of different reference price concepts on bid values. However, after controlling for internal and external reference prices, sellers only have a moderate ability to affect bid values via the provision of an advertised reference price. An exaggerated advertised reference price increases the bid value among consumers, who consider it to be believable. However, its effect is reverse in the presence of an external reference price if consumers consider it unbelievable, decreasing bid values.