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Tanjim Hossain, John Morgan

Cited by*: 3 Downloads*: 8

We conducted 80 auctions on eBay. Forty of these auctions were for various popular music CDs while the remaining 40 auctions were for video games for Microsoft's Xbox gaming console. The revenue equivalence theorem states that any auction form having the same effective reserve price yields the same expected revenue. The effective reserve price on eBay consists of three components: the opening bid amount, the secret reserve amount, and the shipping and handling charge to keep the overall reserve level fixed. We set no secret reserve price and varied the opening bid and the shipping and handling charge to keep the overall reserve level fixed. When the effective reserve was $4, auctions with a low opening bid and high shipping charges attracted more bidders, earlier bidding, and yielded higher revenue than those with a high opening bid and low shipping charges. The same results hold only for Xbox games under the $8 effective reserve. Unlike the other treatments, where the reserve represents less than 30% of the retail price of the item, for CDs, the $8 effective reserve represents over 50% of the retail price of the item. In this treatment, we find no systematic difference in the number of bidders attracted to the auction or revenues as a function of how the effective reserve is allocated between opening bid and shipping charges. We show that these results can be accounted for by bounded-rational bidding behavior.

Tanjim Hossain, John Morgan

Cited by*: 47 Downloads*: 65

Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.

Jeffrey C Ely, Tanjim Hossain

Cited by*: 1 Downloads*: 7

We conducted a field experiment to test the benefit from late bidding (sniping) in online auction markets. We compared sniping to early bidding (squatting) in auctions for newly-released DVDs on eBay. Sniping led to a statistically significant increase in our average surplus. However, this improvement was small. The two bidding strategies resulted in a variety of other qualitative differences in the outcomes of auctions. We show that a model of multiple concurrent auctions, in which our opponents are naive or incremental bidders as identified in the lab, explain the results well. Our findings illustrate how the overall impact of naivete, and the benefit from sniping observed in the lab, may be substantially attenuated in real-world market settings.

Tanjim Hossain, John Morgan

Cited by*: 0 Downloads*: 7

We use field and natural experiments in online auctions to study the revenue effect of varying the level and disclosure of shipping charges. Our main findings are (1) disclosure affects revenues-for low shipping charges, a seller is better off disclosing; and (2) increasing shipping charges boosts revenues when these charges are hidden. These results are not explained by changes in the number of bidders.

Fuhai Hong, Tanjim Hossain, John A List, Migiwa Tanaka

Cited by*: 6 Downloads*: 98

A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.

Fuhai Hong, Tanjim Hossain, John A List

Cited by*: 3 Downloads*: 35

Exploiting findings that losses loom larger than gains, studies have shown that framing manipulations can increase productivity of workers. Using a natural field experiment that exogenously manipulates wage bonuses within contests in a Chinese high-tech manufacturing facility, we show that how loss aversion affects worker behavior critically depends on the incentive scheme as well as the framing manipulation. Four sets of two identical teams competed against each other to win a bonus given to the team, within a set, with the higher average hourly productivity over the week. In each set, the bonus was framed as a reward or gain for one team and as a punishment or loss for the other. Average weekly productivity was slightly higher under the loss treatment, but this increase was statistically insignificant. However, the team under the loss treatment was at least 35% more likely to win the contest. As teams' payoffs are based on relative productivity under a contest, framing effect is much stronger in terms of relative productivity. Finally, workers seemingly responded to the bonus by increasing the quality of production as well as quantity-defect rate fell as productivity increased.

Tanjim Hossain, John A List

Cited by*: 9 Downloads*: 19

Recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets. Such gains in knowledge have come primarily via laboratory experiments--a missing piece of the puzzle in many cases is parallel evidence drawn from naturally-occurring field counterparts. We provide a small movement in this direction by taking advantage of a unique opportunity to work with a Chinese high-tech manufacturing facility. Our study revolves around using insights gained from one of the most influential lines of behavioral research--framing manipulations--in an attempt to increase worker productivity in the facility. Using a natural field experiment, we report several insights. For example, conditional incentives framed as both "losses" and "gains" increase productivity for both individuals and teams. In addition, teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains. The magnitude of the effect is roughly 1%: that is, total team productivity is enhanced by 1% purely due to the framing manipulation. Importantly, we find that neither the framing nor the incentive effect lose their importance over time; rather the effects are observed over the entire sample period. Moreover, we learn that worker reputation and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long-run production function.

Fuhai Hong, Tanjim Hossain, John A List, Migiwa Tanaka

Cited by*: 0 Downloads*: 29

Using a natural field experiment with factory workers where we introduce a quantity-based performance-pay scheme in addition to their base salary, we quantify the impact of one-dimensional monetary incentives on both incentivized (quantity) and non-incentivized (quality) dimensions of output. While the management typically observes only quantity, we also observe quality by hiring quality-inspectors unbeknownst to the workers. While some workers receive a flat-rate base salary, others receive a piece-rate base salary. We find sharp evidence that workers under a flat-rate base salary trade off quality for quantity. Interestingly, this quantity-quality trade-off is statistically insignificant for workers under a piece-rate base salary. This variation in the treatment effect is consistent with a simple theoretical model that predicts that when agents are already incented at the margin, the quantity-quality trade-off resulting from additional incentives will be less prominent.