The Impact of Individual-Level Consumer Surplus on Subsequent Willingness-to-Pay and Consumer Behaviour: An Example from Online Auctions

Although the opportunity to earn consumer surplus is an important reason why markets exist and consumers participate in them, most research on consumer surplus has examined antecedent factors that create or reduce consumer surplus, giving less attention to the future consequences of earning surplus. We examine how earning consumer surplus affects future consumer behaviour. Using data from bidding in actual eBay auctions for stamps as an example, we find that earning consumer surplus in an auction increases winning bidders’ willingness to pay and likelihood of winning in future auctions, as well as non-price behaviour, specifically their likelihood of submitting their final bid later in future auctions. We also find that winning bidders have a distinctive, negative reaction to earning zero consumer surplus. In particular, when winning bidders earn zero surplus, their willingness to pay, likelihood of winning, and tendency to bid later, decrease. This finding suggests that the observed effect is not due to a wealth effect of paying less money for an item that they buy, but rather to bidders attending to and processing information on consumer surplus. Our analysis controls for bids only one increment above the current bid, as these may not fully reflect willingness to pay.