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Buy it Now: A Hybrid Internet Market Institution

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  • Anderson, Steve
  • Friedman, Daniel
  • Milam, Garrett
  • Singh, Nirvikar

Abstract

This paper analyzes seller choices and outcomes in approximately 700 recent Internet auctions on eBay. The ‘Buy it Now’ option that is available in these auctions allows the seller to supplement or replace the auction with a posted price offer. We use a structural model to control for the endogenous conduct of the auction (e.g., number of bids and bidders) as well as product and seller characteristics. Among other results, we find that the ‘Buy it Now’ option was used more often by sellers with higher ratings (awarded by previous buyers) and sellers offering fewer units; and that posted prices were more prevalent for used items. Sellers obtained higher prices for unused and undamaged items overall, and especially when selling at the ‘Buy it Now’ price.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt21d715v9.

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Date of creation: 01 Apr 2004
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Handle: RePEc:cdl:ucscec:qt21d715v9

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  1. Alvin E. Roth & Axel Ockenfels, . "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," Papers on Strategic Interaction 2002-32, Max Planck Institute of Economics, Strategic Interaction Group.
  2. Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September.
  3. Resnick, Paul & Zeckhauser, Richard & Swanson, John & Lockwood, Kate, 2003. "The Value of Reputation on eBay: A Controlled Experiment," Working Paper Series rwp03-007, Harvard University, John F. Kennedy School of Government.
  4. Steven Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004. "Seller Strategies on eBay," Industrial Organization 0412004, EconWPA.
  5. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series 992, CESifo Group Munich.
  6. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  7. Spulber, Daniel F, 1996. "Market Making by Price-Setting Firms," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 559-80, October.
  8. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
  9. Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
  10. Spulber,Daniel F., 2009. "The Theory of the Firm," Cambridge Books, Cambridge University Press, number 9780521736602, April.
  11. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer, vol. 27(3), pages 583-596, 04.
  12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  13. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 2000. "Pennies from eBay: the Determinants of Price in Online Auctions," Econometric Society World Congress 2000 Contributed Papers 1736, Econometric Society.
  14. Daniel Friedman, 1982. "Price Formation in Double Auction Markets," UCLA Economics Working Papers 278, UCLA Department of Economics.
  15. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
  16. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  17. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  18. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
  19. Stoll, Hans R., 2003. "Market microstructure," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 9, pages 553-604 Elsevier.
  20. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  21. Cason Timothy N. & Friedman Daniel, 2002. "A Laboratory Study of Customer Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-45, February.
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Cited by:
  1. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, vol. 38(1), pages 9-39, January.
  2. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer, vol. 37(1), pages 3-42, August.
  3. Steven Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004. "Seller Strategies on eBay," Industrial Organization 0412004, EconWPA.
  4. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  5. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2010. "Buy-It-Now prices in eBay Auctions - The Field in the Lab," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 294, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Peeters, Ronald & Strobel, Martin & Vermeulen, Dries & Walzl, Markus, 2007. "The impact of the irrelevant – Temporary buy-options and bidding behavior in online auctions," Research Memorandum 027, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2006. "How eBay Sellers set “Buy-it-now†prices - Bringing The Field Into the Lab," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 181, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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