On the pricing rule in electronic auctions
AbstractResearchers and experts have typically viewed electronic auctions (such as those implemented by eBay, Amazon, and Yahoo!) as either oral, ascending-price (English) auctions or second-price, sealed-bid (Vickrey) auctions. I show that important theoretical differences exist between English and Vickrey pricing rules and those used in electronic auctions, due to the presence of bid increments. I also show, using data on eBay laptop sales, that these differences have practical significance. I explore the implications of bid increments for strategic bid selection in a static model within the symmetric independent private-value paradigm. I derive the unique symmetric equilibrium bid function, showing that the presence of bid increments can significantly alter bidder behavior. Using numerical methods, I also illustrate that these result in a highly non-linear bid function, in contrast to that predicted under either the English or the Vickrey formats.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 28 (2010)
Issue (Month): 5 (September)
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Web page: http://www.elsevier.com/locate/inca/505551
eBay Electronic auctions Bid increments Pricing rule;
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