Buy-it-now or Take-a-chance: Price Discrimination through Randomized Auctions
AbstractIncreasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18590.
Date of creation: Dec 2012
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Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D47 - Microeconomics - - Market Structure and Pricing - - - Market Design
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-15 (All new papers)
- NEP-COM-2012-12-15 (Industrial Competition)
- NEP-CTA-2012-12-15 (Contract Theory & Applications)
- NEP-IND-2012-12-15 (Industrial Organization)
- NEP-MIC-2012-12-15 (Microeconomics)
- NEP-MKT-2012-12-15 (Marketing)
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