Saturday, November 26, 2011

Charity Auctions

Why are charity auctions insanely successful?  A few possibilities:

  1. They attract people who aren't regular auction-goers.  (These people don't know to correct for the winner's curse and so forth, where applicable).  
  2. People are happy to give some money to charity (and so will bid higher than they would have).  
  3. Charity auctions give people an excuse to bid the way they're really dying to bid in a normal auction, without fear of reprisal (from themselves or others) that they were being irrational.
Now, I wonder how efficient the outcomes of charity auctions turn out to be.  That is, do the people who value the items the most tend to end up with them?  Or do the items go to those who are most willing to give to charity?  The answer would tell us something interesting about which of the reasons above is playing the bigger role.

5 comments:

  1. I'm not sure that charity auctions are wildly successful. We recently donated a basket to a silent auction at a relatively large charity event. There were several hundred people there. The dollar value of the basket was around $80, yet it only ended up going for $35. Given that everything in the basket came from Target, it isn't surprising that no one was willing to spend more than $80 for the basket (you can always stop by Target on your way home if you want). Perhaps this says something about the type of charity auctions which will be most successful. For instance, the best type may be for items that are difficult to value or one-of-a-kind (e.g. cake auctions, bachelor auctions, etc.).

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  2. That's interesting, Ian. One thing I do think is that people will not bid for stuff they don't want. They are especially averse to exercising their right of free disposal, so if there is a basket with some stuff they want and some stuff they don't, it's going to hurt their valuation a lot.

    I wonder if individual items tend to go over better? Bundling doesn't seem like it would be useful in an auction except to reduce the time cost of selling off the items.

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  3. These are reasons why charity auctions *could be* wildly successful. In line with Ian's comment, the level of success probably depends a lot on what is being auctioned. Unique, big ticket items that are hard to value tend to go for a lot. I'd expect something like dinner or golf with a celebrity would attract aggressive bidding. On the other side of the spectrum, I know of at least one bottle of wine that received no bids at a charity auction (and I know that you know of this bottle of wine).

    Another hypothesis to consider: Charity auctions may experience more aggressive bidding if the bidders value expressing generosity publicly. Bidding on the bottle of wine in the silent auction is much less public than bidding in open outcry on the golf outing with Mel Gibson (my made up auction product).

    Finally, it's interesting you bring up bundling. You could view the charity auction itself as a way to create a special kind of bundle (one part goods, x parts recognition). In this sense, bundling can be quite useful. It might be a decent way to sell "charity points" given that it is difficult to auction off "charity points" credibly on their own.

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  4. Thanks for the comments, Tony. Yes, of course I was thinking of that bottle :) tho, somehow it didn't persuade me that charity auctions aren't generally successful. I've heard that they tend to be one of the most effective ways of raising money, but I don't have a paper to cite on hand. You two have decreased my confidence *somewhat*.

    That's interesting about the publicity of the open outcry auction. To the extent that people want to be seen as charitable, but don't want to be seen as wanting to be seen as charitable, the auction provides a very nice environment where it's quite acceptable to be overtly charitable.

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  5. I've always thought that the reason that they tend to be a great way to raise money is because most of the auction items are donated in the first place. Therefor, if they are efficiently (or even inefficiently) auctioned off, the charity makes out great. If the Target basket example, the charity really made out well, even though the basket went for less than the true market value of its contents.

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