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A dynamic model of auctions with buy-it-now: theory and evidence

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  • Chen, Jong-Rong
  • Chen, Kong-Pin
  • Chou, Chien-Fu
  • Huang, Ching-I

Abstract

In the ascending-price auctions with Yahoo!-type buy-it-now (BIN), we characterize and derive the closed-form solution for the optimal bidding strategy of the bidder and the optimal BIN price of the seller when they are both risk-averse. The seller is shown to be strictly better o with the BIN option, while the bidders are better o only when their valuation is greater than a threshold value. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN. This prediction is conrmed by our data collected from Taiwan's Yahoo! auctions of Nikon digital cameras.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38371.

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Date of creation: 03 Apr 2006
Date of revision: 24 Nov 2011
Handle: RePEc:pra:mprapa:38371

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Keywords: online auction; but-it-now; risk-aversion;

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References

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  1. Daniel Houser & John Wooders, 2006. "Reputation in Auctions: Theory, and Evidence from eBay," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(2), pages 353-369, 06.
  2. Lopomo, Giuseppe, 1998. "The English Auction Is Optimal Among Simple Sequential Auctions," Journal of Economic Theory, Elsevier, Elsevier, vol. 82(1), pages 144-166, September.
  3. Xin Wang & Alan Montgomery & Kannan Srinivasan, 2008. "When auction meets fixed price: a theoretical and empirical examination of buy-it-now auctions," Quantitative Marketing and Economics, Springer, Springer, vol. 6(4), pages 339-370, December.
  4. Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, Springer, vol. 81(1), pages 25-52, 01.
  5. Timothy Mathews & Brett Katzman, 2006. "The role of varying risk attitudes in an auction with a buyout option," Economic Theory, Springer, Springer, vol. 27(3), pages 597-613, 04.
  6. Patrick Bajari & Ali Horta�su, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 42(2), pages 457-486, June.
  7. An, Yonghong & Hu, Yingyao & Shum, Matthew, 2010. "Estimating first-price auctions with an unknown number of bidders: A misclassification approach," Journal of Econometrics, Elsevier, Elsevier, vol. 157(2), pages 328-341, August.
  8. Yin, Pai-Ling, 2007. "Empirical tests of information aggregation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(6), pages 1179-1189, December.
  9. John Wooders & Stanley S. Reynolds, 2004. "Auctions with a Buy Price," Econometric Society 2004 North American Summer Meetings, Econometric Society 130, Econometric Society.
  10. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  11. Anna Dodonova & Yuri Khoroshilov, 2004. "Anchoring and transaction utility: evidence from on-line auctions," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(5), pages 307-310.
  12. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  13. Haruvy, Ernan & Popkowski Leszczyc, Peter T. L., 2010. "Internet Auctions," Foundations and Trends(R) in Marketing, now publishers, now publishers, vol. 4(1), pages 1-75, March.
  14. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0284, National Bureau of Economic Research, Inc.
  15. Luis Cabral & Ali Hortacsu, 2006. "The Dynamics of Seller Reputation: Evidence from eBay," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 06-32, New York University, Leonard N. Stern School of Business, Department of Economics.
  16. René Kirkegaard & Per Baltzer Overgaard, 2008. "Buy-out prices in auctions: seller competition and multi-unit demands," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 39(3), pages 770-789.
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Cited by:
  1. Chen, Kong-Pin & Liu, Yu-Sheng & Yu, Ya-Ting, 2012. "The Seller's listing strategy in online auctions: evidence from eBay," MPRA Paper 38369, University Library of Munich, Germany.
  2. Liran Einav & Chiara Farronato & Jonathan D. Levin & Neel Sundaresan, 2013. "Sales Mechanisms in Online Markets: What Happened to Internet Auctions?," NBER Working Papers 19021, National Bureau of Economic Research, Inc.
  3. 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.

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