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A structural model of competing sellers: Auctions and posted prices

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  • Hammond, Robert G.

Abstract

In an original data set of goods listed for sale online, I observe that both auctions and posted prices are popular with buyers and sellers in the compact-disc market. To explain why these two mechanisms coexist, I estimate a structural model of competing sellers who differ in the value of their outside options. Buyers are allowed to value auctioned and posted-price goods differently but the estimated value distributions suggest that differences across buyers do not explain the mechanism coexistence that I observe. In contrast, differences across sellers' outside options are important: the value of the outside option segments the market with high outside-option sellers choosing to post a fixed price. There are two key forces at work that drive this empirical result. First, competition between sellers favors coexistence over an auction-only or a posted-price-only marketplace because sellers prefer to be in a market with fewer rivals. Second, sellers with more valuable outside options prefer the posted-price mechanism because posted-price goods sell less often than auctioned goods but at a higher price. As a result, a larger outside option reduces the loss from not selling and favors the posted-price mechanism.

Suggested Citation

  • Hammond, Robert G., 2013. "A structural model of competing sellers: Auctions and posted prices," European Economic Review, Elsevier, vol. 60(C), pages 52-68.
  • Handle: RePEc:eee:eecrev:v:60:y:2013:i:c:p:52-68
    DOI: 10.1016/j.euroecorev.2013.01.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Anwar, Sajid & Zheng, Mingli, 2015. "Posted price selling and online auctions," Games and Economic Behavior, Elsevier, vol. 90(C), pages 81-92.
    2. repec:eee:ecolet:v:161:y:2017:i:c:p:56-61 is not listed on IDEAS
    3. Hummel, Patrick, 2015. "Simultaneous use of auctions and posted prices," European Economic Review, Elsevier, vol. 78(C), pages 269-284.
    4. Chen, Kong-Pin & Lai, Hung-pin & Yu, Ya-Ting, 2018. "The seller's listing strategy in online auctions: Evidence from eBay," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 107-144.
    5. repec:eee:indorg:v:54:y:2017:i:c:p:65-88 is not listed on IDEAS
    6. Andrew Sweeting, 2015. "A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design," Working Papers 15-03, NET Institute.
    7. 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.
    8. Eberhard Feess & Christian Grund & Markus Walzl & Ansgar Wohlschlegel, 2014. "Competing Trade Mechanisms and Monotone Mechanism Choice," Working Papers 2014-28, Faculty of Economics and Statistics, University of Innsbruck.
    9. 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.
    10. Andrew Sweeting, 2012. "Dynamic Pricing Behavior in Perishable Goods Markets: Evidence from Secondary Markets for Major League Baseball Tickets," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1133-1172.

    More about this item

    Keywords

    Auction; Posted price; Competing sellers; Outside option;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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