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Buy-out prices in auctions: seller competition and multi-unit demands


  • René Kirkegaard
  • Per Baltzer Overgaard


Online auction sites often enable sellers to add a buy-out price. In one-shot auctions, this has been motivated by appeal to impatience or risk aversion. We offer additional justification in a dynamic model, by showing that an early seller has an incentive to use a buy-out price, if a similar product is offered later by another seller, and bidders desire multiple objects. Revenue in the first auction increases, but revenue in the second auction decreases, as does the sum of revenues. The buy-out price causes the auction sequence to become inefficient, because the first item may be awarded to a bidder who should have received none. Copyright (c) 2008, RAND.

Suggested Citation

  • René Kirkegaard & Per Baltzer Overgaard, 2008. "Buy-out prices in auctions: seller competition and multi-unit demands," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 770-789.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:3:p:770-789

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    References listed on IDEAS

    1. Kirkegaard, René & Overgaard, Per Baltzer, "undated". "Buy-Out Prices in Online Auctions: Multi-Unit Demand," Economics Working Papers 2003-4, Department of Economics and Business Economics, Aarhus University.
    2. Jane Black & David de Meza, 1992. "Systematic Price Differences Between Successive Auctionsare no Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-628, December.
    3. Tan, Guofu & Yilankaya, Okan, 2006. "Equilibria in second price auctions with participation costs," Journal of Economic Theory, Elsevier, vol. 130(1), pages 205-219, September.
    4. Kirkegaard, René & Overgaard, Per Baltzer, 2008. "Pre-auction offers in asymmetric first-price and second-price auctions," Games and Economic Behavior, Elsevier, vol. 63(1), pages 145-165, May.
    5. Celik Gorkem & Yilankaya Okan, 2009. "Optimal Auctions with Simultaneous and Costly Participation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-33, July.
    6. Katzman, Brett, 1999. "A Two Stage Sequential Auction with Multi-Unit Demands," Journal of Economic Theory, Elsevier, vol. 86(1), pages 77-99, May.
    7. 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.
    8. Timothy Mathews & Brett Katzman, 2006. "The role of varying risk attitudes in an auction with a buyout option," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(3), pages 597-613, April.
    9. Kirkegaard, Rene, 2005. "Participation fees vs. reserve prices in auctions with asymmetric or colluding buyers," Economics Letters, Elsevier, vol. 89(3), pages 328-332, December.
    10. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 227-252, September.
    11. 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, vol. 5(2), January.
    12. 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, vol. 81(1), pages 25-52, January.
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    Cited by:

    1. Dominic Coey & Bradley Larsen & Brennan Platt, 2016. "A Theory of Bidding Dynamics and Deadlines in Online Retail," NBER Working Papers 22038, National Bureau of Economic Research, Inc.
    2. Anwar, Sajid & Zheng, Mingli, 2015. "Posted price selling and online auctions," Games and Economic Behavior, Elsevier, vol. 90(C), pages 81-92.
    3. Shunda, Nicholas, 2009. "Auctions with a buy price: The case of reference-dependent preferences," Games and Economic Behavior, Elsevier, vol. 67(2), pages 645-664, November.
    4. Kirkegaard, René & Overgaard, Per Baltzer, 2008. "Pre-auction offers in asymmetric first-price and second-price auctions," Games and Economic Behavior, Elsevier, vol. 63(1), pages 145-165, May.
    5. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-016-9594-8 is not listed on IDEAS
    6. repec:eee:trapol:v:62:y:2018:i:c:p:63-78 is not listed on IDEAS
    7. Shunda, Nicholas, 2009. "Auctioning with Aspirations: Keep Them Low (Enough)," MPRA Paper 16242, University Library of Munich, Germany.
    8. Jong-Rong Chen & Kong-Pin Chen & Chien-Fu Chou & Ching-I Huang, 2013. "A Dynamic Model of Auctions with Buy-It-Now: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 393-429, June.
    9. 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 (QME), Springer, vol. 6(4), pages 339-370, December.
    10. Bauner, Christoph, 2015. "Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers," International Journal of Industrial Organization, Elsevier, vol. 38(C), pages 19-31.
    11. repec:eee:indorg:v:56:y:2018:i:c:p:107-144 is not listed on IDEAS

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