Understanding overbidding behavior in C2C auctions: an escalation theory perspective

With millions of online auctions per day, sites such as eBay have revolutionized how consumers buy and sell goods. Despite the benefits associated with online consumer‐to‐consumer (C2C) auctions, there can be drawbacks. Consumers who purchase goods in online auctions may get caught up in auction fever, causing them to engage in overbidding, and sometimes leading to what has been referred to as the winner's curse. While several theoretical explanations have been proposed to explain overbidding behavior (OB), there has been little empirical work in this area. Drawing on escalation theory, this study develops and tests a model of the OB exhibited by individuals in online auction settings. Our model posits that certain escalation drivers such as sunk cost (SC), the completion effect (CE), and self‐justification affect an individual's willingness to continue bidding (WCB) which, in turn, influences OB. Survey data collected from 250 online auction participants were used to test the model using partial least squares analysis. SC and CE were found to have significant impacts on OB that were either partially or fully mediated by WCB. We also found that competition intensity moderates the relationship between willingness to continue and OB such that when competition is more intense, the relationship becomes even stronger. The implications of these findings for both research and practice are discussed.