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On the pricing rule in electronic auctions

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  • Hickman, Brent
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    Abstract

    Researchers 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 Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 28 (2010)
    Issue (Month): 5 (September)
    Pages: 423-433

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    Handle: RePEc:eee:indorg:v:28:y:2010:i:5:p:423-433

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: eBay Electronic auctions Bid increments Pricing rule;

    References

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    1. Lizzeri, Alessandro & Persico, Nicola, 2000. "Uniqueness and Existence of Equilibrium in Auctions with a Reserve Price," Games and Economic Behavior, Elsevier, vol. 30(1), pages 83-114, January.
    2. Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, 01.
    3. Matthew O. Jackson & Leo K. Simon & Jeroen M. Swinkels & William R. Zame, 2002. "Communication and Equilibrium in Discontinuous Games of Incomplete Information," Econometrica, Econometric Society, vol. 70(5), pages 1711-1740, September.
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    Cited by:
    1. Philippe Jehiel & Laurent Lamy, 2011. "Absolute auctions and secret reserve prices: Why are they used?," Levine's Working Paper Archive 786969000000000316, David K. Levine.
    2. Chen, Kebing, 2012. "Procurement strategies and coordination mechanism of the supply chain with one manufacturer and multiple suppliers," International Journal of Production Economics, Elsevier, vol. 138(1), pages 125-135.

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