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Buy-out prices in auctions: seller competition and multi-unit demands

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  • René Kirkegaard
  • Per Baltzer Overgaard

Abstract

Online auction sites often enable sellers to add a buy-out price. In one-shot auctions, this has been motivated by appeal to impatience or risk aversion. We offer additional justification in a dynamic model, by showing that an early seller has an incentive to use a buy-out price, if a similar product is offered later by another seller, and bidders desire multiple objects. Revenue in the first auction increases, but revenue in the second auction decreases, as does the sum of revenues. The buy-out price causes the auction sequence to become inefficient, because the first item may be awarded to a bidder who should have received none. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 3 ()
Pages: 770-789

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Handle: RePEc:bla:randje:v:39:y:2008:i:3:p:770-789

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Cited by:
  1. Nicholas Shunda, 2007. "Auctions with a Buy Price: The Case of Reference-Dependent Preferences," Working papers 2007-42, University of Connecticut, Department of Economics.
  2. Shunda, Nicholas, 2009. "Auctioning with Aspirations: Keep Them Low (Enough)," MPRA Paper 16242, University Library of Munich, Germany.
  3. Kirkegaard, René & Per Baltzer Overgaard, 2005. "Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions," Economics Working Papers 2005-17, School of Economics and Management, University of Aarhus.
  4. Jong-Rong Chen & Kong-Pin Chen & Chien-Fu Chou & Ching-I Huang, 2013. "A Dynamic Model of Auctions with Buy-It-Now: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 393-429, 06.
  5. Xin Wang & Alan Montgomery & Kannan Srinivasan, 2008. "When auction meets fixed price: a theoretical and empirical examination of buy-it-now auctions," Quantitative Marketing and Economics, Springer, vol. 6(4), pages 339-370, December.

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