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Auctions with a Buy Price

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Author Info

  • John Wooders
  • Stanley S. Reynolds

Abstract

Internet auctions on eBay and Yahoo allow sellers to list their auctions with a Buy-Now option. In such auctions the seller sets a buy price at which a bidder may purchase the item immediately and end the auction. In the eBay version of a buy-now auction, the buy-now option disappears as soon as a bid is placed, while in the Yahoo version the buy-now option remains in effect throughout the auction. When bidders are risk neutral there is no advantage to introducing a buy price in either an eBay or Yahoo auction. When bidders are risk averse, introducing a buy price raises seller revenue in both the eBay and the Yahoo auction for a wide range of buy prices. We show that while the Yahoo format raises more revenue than the eBay format (when the reserve and the buy prices are the same in both auctions), the auctions are utility equivalent from the bidders' perspective

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 130.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:130

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Keywords: Online Auctions; Electronic Commerce;

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References

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  1. Roberto Burguet, 2000. "Auction theory: a guided tour," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 24(1), pages 3-50, January.
  2. Peters, Michael & Severinov, Sergei, 2006. "Internet auctions with many traders," Journal of Economic Theory, Elsevier, Elsevier, vol. 130(1), pages 220-245, September.
  3. Roth, Alvin & Ockenfels, Axel & Ariely, Dan, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," Scholarly Articles 2579649, Harvard University Department of Economics.
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  7. Roberto Burguet, . "Right To Choose In Oral Auctions," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 439.99, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, Elsevier, vol. 72(3), pages 325-333, September.
  9. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 633-46, May.
  10. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1093-1103, September.
  11. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1089-1122, September.
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  13. Timothy Mathews, 2003. "A Risk Averse Seller in a Continuous Time Auction with a Buyout Option," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, Department of Economics, Universidade Federal de Pernambuco, vol. 5(2), January.
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