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Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers

Listed author(s):
  • Bauner, Christoph
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    A striking feature of many online sales platforms is the coexistence of multiple sales mechanisms. Items on eBay, for instance, are frequently offered through auctions, posted prices, and buy-it-now auctions. In this article, I study how this mechanism multiplicity influences the welfare of buyers and sellers. I specify and estimate a structural model of mechanism choice in online markets, in which I consider both sides of the market: On the demand side, buyers' choices among available listings are equilibrium outcomes of an entry game. On the supply side, sellers make equilibrium decisions when choosing sales mechanisms and prices. I estimate this model using data from sales of baseball tickets on eBay and calculate consumer and seller rents in three markets: the actual market with all three sales mechanisms and two counterfactual markets with auctions and fixed prices or only fixed-price listings, respectively. I find that the addition of auctions to fixed-price markets hurts sellers and risk-averse buyers but benefits risk-neutral buyers. Additionally, the consumer surplus increases when buy-it-now auctions are offered but the seller surplus is reduced further. I discuss the intuition for the cause of this result.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167718714001210
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    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 38 (2015)
    Issue (Month): C ()
    Pages: 19-31

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    Handle: RePEc:eee:indorg:v:38:y:2015:i:c:p:19-31
    DOI: 10.1016/j.ijindorg.2014.12.001
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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