Findings from two studies – a laboratory and a field experiment – examine the effects of starting bids on seller earnings in online consumer-to-consumer auctions. Present results show that as starting bids increase, and as the number of bidders increase, seller earnings increase. Theoretically, both the affiliated private value (APV) model and a reference price explanation explain seller earnings. Bidder price fairness perceptions are also evaluated and results consistent with attribution theory indicate that higher starting bids positively impact perceptions of price fairness for winning bidders but have an adverse effect on losing bidders. That is, winning bidders make internal attributions of success while losing bidders make negative external attributions regarding winning bidders that result in more positive price fairness perceptions for winners versus losers. Importantly, losing bidders make no negative attributions toward the seller. In total, these findings suggest that sellers can receive greater earnings as well as no adverse price fairness perceptions from winning bidders by setting starting bids higher.

The contribution of this research is intended to extend the current theoretical and practical research regarding auctions. Economic auction theorists did not fully consider the reference effect associated with starting bids in their APV model. Our results suggest that (1) the starting bid acts as an external referent and (2) winning bidders affiliate or use the bids of other bidders to aid their individual assessments toward an acceptable valuation. These results also extend the Kamins, Dreze, and Folkes (2004) theoretical explanation based on starting bids serving as reference prices.

The inclusion of perceptual measures offers an added contribution of this research. Not only did winning bidders use starting bids as referents, and assess their individual valuations based on the bidding process, but they also reported higher levels of price fairness when high  starting bids were used. The latter contribution is particularly interesting in that one might expect that lower starting bids would be the point of maximum price fairness perceptions. However, consistent with the notion of managing and protecting one’s self-esteem for their high bid, it was, at the higher starting bids that price fairness perceptions were maximized for winners. That is, despite paying greater prices, winning bidders had more positive perceptions when the starting bid was set high while the losers were less happy. Importantly, the losers’ price unfairness perceptions were focused on other bidders, not the auction seller. Thus, these findings contribute to marketing thought by suggesting that sellers in online auctions can receive greater earnings and suffer no adverse perceptions of price unfairness from winning bidders by setting starting bids high.

The current results have additional practical implications for sellers. Based on the field experiment, a seller stands to make approximately five percent more on each item sold if s/he sets the starting bid at a higher level compared to a low level. An active individual seller or a small retailer using an online auction site to promote and sell its products could see long-term benefits from establishing higher starting bids.