Bidder Motives in Cause Related Auctions

We study cause-related auctions where a percentage of the dynamically determined purchase price of an item is donated to charity. Little is known about the effectiveness of such auctions. Charitable bidders who value donations to charity have an incentive to bid more aggressively in such auctions. These bidders can significantly affect prices whether they win or not. The purpose of this paper is to study bidders' willingness to pay a premium in charity auctions and the drivers that affect the charity premium. We use a carefully designed field experiment involving simultaneous pairs of auctions identical in all but percentage of the proceeds donated to charity. This design gives us the ability to look at bidder choice among auctions based on charitable considerations. We use a mixture model approach to allow for different types of individual preferences and find that individuals fall into three segments: a selfish segment and two altruistic segments. The altruistic segments, which drive up the charity premium, can be classified as warm glow bidders who derive a pleasure from the act of giving, and other-regarding bidders who give for selfless reasons. Results show the difference in donation percentages is the major factor influencing the charitable premium. However, bidders differ considerably in their responses to donation percentages. While other-regarding bidders tend to seek auctions where a greater percentage of revenue is donated to charity, warm glow bidders only contribute when the charity premium is sufficiently low. This means managers should focus their marketing efforts on appealing to these different segments, depending on the percentage donated to charity