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Comparing revenue from auctions and posted prices

  • Hammond, Robert G.

I analyze the market for compact discs using an original data set of items listed for sale online. Over 5000 listings of both new and used compact discs were collected from eBay (which provides sellers a choice between two mechanisms: auction or posted price) and its subsidiary, Half.com (which features only posted prices). Despite the often cited revenue-dominance property of auctions, many sellers choose to post a fixed price. To explain this anomaly, I examine empirically the determinants of the revenue earned by sellers in this market. I find that posted-price goods sell for higher prices, while auctioned goods sell with a higher probability. Further results suggest that the size of a seller's inventory is the key factor in the choice between selling in an auction and posting a fixed price. In particular, sellers with large inventories are more likely to use the posted-price mechanism.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 1 (January)
Pages: 1-9

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Handle: RePEc:eee:indorg:v:28:y:2010:i:1:p:1-9
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. John Wooders & Stanley S. Reynolds, 2004. "Auctions with a Buy Price," Econometric Society 2004 North American Summer Meetings 130, Econometric Society.
  2. Ruqu Wang, 1991. "Auctions Versus Posted-Price Selling," Working Papers 812, Queen's University, Department of Economics.
  3. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer, vol. 27(3), pages 583-596, 04.
  4. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "Multivariate probit regression using simulated maximum likelihood," Stata Journal, StataCorp LP, vol. 3(3), pages 278-294, September.
  5. Kleibergen, F.R. & Paap, R., 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Institute Research Papers EI 2003-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  6. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  8. Harris, Milton & Raviv, Artur, 1981. "A Theory of Monopoly Pricing Schemes with Demand Uncertainty," American Economic Review, American Economic Association, vol. 71(3), pages 347-65, June.
  9. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  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.
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