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On the pricing rule in electronic auctions

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  • Hickman, Brent

Abstract

Researchers and experts have typically viewed electronic auctions (such as those implemented by eBay, Amazon, and Yahoo!) as either oral, ascending-price (English) auctions or second-price, sealed-bid (Vickrey) auctions. I show that important theoretical differences exist between English and Vickrey pricing rules and those used in electronic auctions, due to the presence of bid increments. I also show, using data on eBay laptop sales, that these differences have practical significance. I explore the implications of bid increments for strategic bid selection in a static model within the symmetric independent private-value paradigm. I derive the unique symmetric equilibrium bid function, showing that the presence of bid increments can significantly alter bidder behavior. Using numerical methods, I also illustrate that these result in a highly non-linear bid function, in contrast to that predicted under either the English or the Vickrey formats.

Suggested Citation

  • Hickman, Brent, 2010. "On the pricing rule in electronic auctions," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 423-433, September.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:5:p:423-433
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    References listed on IDEAS

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    1. Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, January.
    2. Lizzeri, Alessandro & Persico, Nicola, 2000. "Uniqueness and Existence of Equilibrium in Auctions with a Reserve Price," Games and Economic Behavior, Elsevier, vol. 30(1), pages 83-114, January.
    3. Matthew O. Jackson & Leo K. Simon & Jeroen M. Swinkels & William R. Zame, 2002. "Communication and Equilibrium in Discontinuous Games of Incomplete Information," Econometrica, Econometric Society, vol. 70(5), pages 1711-1740, September.
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    Citations

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    Cited by:

    1. Peter Csoka & P. Jean-Jacques Herings, 2022. "Centralized clearing mechanisms: A programming approach," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 7(1), pages 45-69, December.
    2. Aaron Bodoh-Creed & Jörn Boehnke & Brent R. Hickman, 2013. "Optimal Design of Two-Sided Market Platforms: An Empirical Case Study of eBay," Working Papers 13-22, NET Institute.
    3. Chen, Kebing, 2012. "Procurement strategies and coordination mechanism of the supply chain with one manufacturer and multiple suppliers," International Journal of Production Economics, Elsevier, vol. 138(1), pages 125-135.
    4. Marleen Marra, 2019. "Pricing and Fees in Auction Platforms with Two-Sided Entry," Working Papers hal-03393068, HAL.
    5. Bernard Lebrun, 2015. "Revenue-superior variants of the second-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 245-275, June.
    6. repec:hal:spmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    7. Ola Andersson & Tommy Andersson, 2017. "Timing and presentation effects in sequential auctions," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 2(1), pages 39-55, December.
    8. repec:hal:wpspec:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    9. Platt, Brennan C., 2017. "Inferring ascending auction participation from observed bidders," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 65-88.
    10. Janne Tukiainen, 2017. "Effects of Minimum Bid Increments in Internet Auctions: Evidence from a Field Experiment," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 597-622, September.
    11. Philippe Jehiel & Laurent Lamy, 2011. "Absolute auctions and secret reserve prices: Why are they used?," Levine's Working Paper Archive 786969000000000316, David K. Levine.
    12. Olena Myrna, 2022. "Lower price increases, the bounded rationality of bidders, and underbidding concerns in online agricultural land auctions: The Ukrainian case," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(3), pages 826-844, September.
    13. Myrna, Olena, 2023. "Competition in online land lease auctions in Ukraine: Reduced-form estimation," Land Use Policy, Elsevier, vol. 125(C).
    14. Ghosh, Gagan, 2021. "Simultaneous auctions with budgets: Equilibrium existence and characterization," Games and Economic Behavior, Elsevier, vol. 126(C), pages 75-93.

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