Hard and Soft Closes: a Field Experiment on Auction Closing Rules

The growth of auctions on the Internet raises new theoretical questions, provides a wealth of data on bidding behavior in auctions, and presents new opportunities for running experiments in the field. The present paper reports the results of a field experiment on the effects of closing rules on auction outcomes. Different auction sites have adopted different closing rules. On eBay, auctions have a “hard” close, with the seller specifying when it ends (either exactly 3, 5, 7, or 10 days after it is listed). On Amazon, auctions have a “soft” close, with the auction ending at the scheduled closing time if no bids arrive in the prior 10 minutes, but with the auction otherwise ending only after 10 minutes has elapsed without a bid. The present study takes advantage of the fact that Yahoo! Auctions allows a seller, when listing an auction, to choose whether to end the auction with a hard or soft close. In our experiment, identical pairs of $50 gift cards were auctioned simultaneously, with one card of the pair auctioned with a soft close and the other auctioned with a hard close. We find that soft-close auctions yield higher revenue than hard-close auctions, and this difference is statistically significant. Both types of auctions were equally likely to have a “late bid”, i.e., a bid submitted within the last five minutes of the auction. However, our ability to detect differences in the frequency of late bidding is limited by the small sample size of our study. Our study is motivated, in part, by Roth and Ockenfels’ (2000, 2002) comparison of last minute bidding (also know as “sniping”) on eBay and Amazon, on auctions of computers and antiques. Roth and Ockenfels find that there is significantly more late bidding on eBay auctions than on Amazon auctions. In their data set, more than two-thirds of the eBay auctions received a bid in the last 30 minutes of the auction, and about 40 percent received bids in the last five minutes. In contrast, on Amazon only about one quarter of the auctions received a bid in the last 30 minutes of the auction, and only 3 percent received a bid in the last five minutes.