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Auctions with a buy price: The case of reference-dependent preferences

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  • Shunda, Nicholas

Abstract

In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 67 (2009)
Issue (Month): 2 (November)
Pages: 645-664

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Handle: RePEc:eee:gamebe:v:67:y:2009:i:2:p:645-664

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Auction Buy price Internet Reference-dependence;

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Citations

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Cited by:
  1. Ulrike Malmendier & Young Han Lee, 2011. "The Bidder's Curse," American Economic Review, American Economic Association, vol. 101(2), pages 749-87, April.
  2. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
  3. Eisenhuth, Roland, 2010. "Auction Design with Loss Averse Bidders: The Optimality of All Pay Mechanisms," MPRA Paper 23357, University Library of Munich, Germany.
  4. Ángel Hernando-Veciana, 2010. "Comment on "Auctions with a buy price: The case of reference-dependent preferences"," Economics Working Papers we1019, Universidad Carlos III, Departamento de Economía.
  5. Shunda, Nicholas, 2009. "Auctioning with Aspirations: Keep Them Low (Enough)," MPRA Paper 16242, University Library of Munich, Germany.
  6. Liu, Kang Ernest & Shiu, Ji-Liang & Sun, Chia-Hung, 2013. "How different are consumers in Internet auction markets? Evidence from Japan and Taiwan," Japan and the World Economy, Elsevier, vol. 28(C), pages 1-12.
  7. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2009. "Buy-it-Now Prices in eBay Auctions-The Field in the Lab," Cahiers de recherche 0950, CIRPEE.
  8. Kathryn Graddy & Lara Loewenstein & Jianping Mei & Mike Moses & Rachel Pownall, 2014. "Anchoring or Loss Aversion? Empirical Evidence from Art Auctions," Working Papers 73, Brandeis University, Department of Economics and International Businesss School.
  9. Jannett Highfill & Kevin O’Brien, 2009. "The Effect of Alternative e-Prices on eBay Book Auctions," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(4), pages 383-395, December.

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