Comparing revenue from auctions and posted prices
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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