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Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods

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  • Chia-Hui Chen

Abstract

A buyer suggests prices to N sellers in a time period and buys from the seller who accepts the bid first. The number of bidding rounds is determined by how frequently the buyer can make an offer. We show that with no limit on the frequency and without discounting, the price path is either kept flat initially with large jumps at the end or increasing steadily over time. Which class of path occurs in equilibrium depends on the buyer's trade-off between committing to a price ceiling versus finely screening the sellers' costs. With discounting, limiting the number of rounds mitigates the delay caused by the reluctance to raise bids in the first class of equilibrium and therefore can benefit the buyer. This result suggests why, in reality, bargaining parties often take measures to make their offers rigid and consequently force themselves to make fewer offers. Copyright , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 4 ()
Pages: 1341-1369

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Handle: RePEc:oup:restud:v:79:y:2012:i:4:p:1341-1369

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Cited by:
  1. Johannes Horner & Larry Samuelson, 2008. "Managing Strategic Buyers," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1684R, Cowles Foundation for Research in Economics, Yale University, revised Sep 2010.
  2. Huang, Ching-I & Chen, Jong-Rong & Lee, Chiu-Yu, 2013. "Buyer behavior under the Best Offer mechanism: A theoretical model and empirical evidence from eBay Motors," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 94(C), pages 11-33.
  3. Johannes Horner & Larry Samuelson, 2010. "Managing Strategic Buyers," Levine's Working Paper Archive 661465000000000279, David K. Levine.
  4. Qingmin Liu & Konrad Mierendorff & Xianwen Shi, 2013. "Auctions with Limited Commitment," Working Papers, University of Toronto, Department of Economics tecipa-504, University of Toronto, Department of Economics.
  5. Chia-Hui Chen & Junichiro Ishida, 2013. "Auctions Versus Negotiations: The Role of Price Discrimination," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0873, Institute of Social and Economic Research, Osaka University.
  6. Johannes Horner & Larry Samuelson, 2011. "Managing Strategic Buyers," Levine's Working Paper Archive 786969000000000025, David K. Levine.
  7. William Fuchs & Andrzej Skrzypacz, 2013. "Bargaining with Deadlines and Private Information," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 5(4), pages 219-43, November.

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