Charity auctions are a way of
raising funds for
charities
A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good).
The legal definition of a cha ...
.
According to the ''
New York Times'', items that sell well in such
auctions are experiential items that cannot typically be bought in the store, including meetings with celebrities, an autographed guitar, and naming rights for characters in a forthcoming novel.
In one notable example, Musician
Eric Clapton
Eric Patrick Clapton (born 1945) is an English rock and blues guitarist, singer, and songwriter. He is often regarded as one of the most successful and influential guitarists in rock music. Clapton ranked second in ''Rolling Stone''s list of ...
sold 100 of his guitars in a charity auction in 1999 and raised $5 million for his substance abuse treatment facility.
In a charity auction the winning payment benefits a cause that is presumably valued by the bidder as well as competing bidders. Thus, the bidder receives a benefit from his own payment – both the item won and the value the donation supports the organization – and other bidders do as well, as their charity is supported.
Therefore, bidders have two objectives that could be in conflict with one another: to win items that they value but also to support a charitable cause in part by driving up the price.
This makes the charity auction a
public good Public good may refer to:
* Public good (economics), an economic good that is both non-excludable and non-rivalrous
* The common good, outcomes that are beneficial for all or most members of a community
See also
* Digital public goods
Digital pu ...
, and that means that bidders may be incentivized to lose. This introduces a
free-rider problem. If the free-rider problem dominates, then bids and consequently auction revenues would be depressed.
On the other hand, bids could rise because they are subsidized by charitable sentiment
Theoretical work has investigated the properties of different formats of charity auctions under the assumption that bidders care about the charity's revenue. The general result is that private benefits from charitable giving can translate into a “charity premium,” an increase I auction revenue resulting from charitable donations.
In particular, altruism could play a role, and this altruism could very much depend on the proportion of the proceeds that is donated to charity.
[Haruvy, E., & Leszczyc, P. T. P. (2009). Bidder motives in cause-related auctions. International Journal of Research in Marketing, 26(4), 324-331.]
References
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Charity events
Contexts for auctions