Thursday, December 14, 2006

on the auction block

Now the plane will be put up for sale on eBay.

The plane in question is a $2.692 Million Westwind II jet purchased by the former governor of Alaska, Frank H. Murkowski. The new governor, Sarah Palin, wants nothing to do with it. As reported in this morning’s NYT.

No sign of the jet as yet under the State’s moniker “stateofalaskasurplus” on eBay. Palin would be wise to heed research by Adam Galinsky of Northwestern’s Kellogg School of Management which showed that, in online auctions, lower starting prices lead to higher final prices – reversing the anchoring effect that drives general haggling in which “value is judged (or misjudged) by the first number mentioned.”

Gallinsky’s research (based on eBay data) shows that:

Low starting prices reduce barriers to entry, tempting even idle browsers to place bids. The increased traffic then generates higher final prices as more buyers bid against one another. Psychological forces play into it as well.

Low starting prices entice bidders to invest time and energy in the auction, and while every M.B.A. student knows it’s dumb base decisions on sunk costs, the eBay bidders did just that, escalating their commitments to their previous bids.

Finally, the researchers showed that traffic begets more traffic because later bidders take the number of earlier bidders as proof of an item’s worth.

Originally published in the June 2006 issue of The Journal of Personality and Social Psychology, and recapped in the NYT Magazine’s 6th Annual Year in Ideas published last weekend.

Update: The jet sold for $2.1 Million -- a loss of half a million from the original sticker. That's some serious depreciation.

Additional Update: Turns out the plane sold, but not on eBay. Here's the Washington Post story »

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