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The optimal format to sell a product through the internet: Posted price, auction, and buy-price auction

Listed author(s):
  • Sun, Daewon
  • Li, Erick
  • Hayya, Jack C.
Registered author(s):

    Motivated by the proliferation of online selling, we study a seller's decision problem: The seller has one unit of product and needs to choose a selling format among three different ones (posted price, auction, and buy-price auction), as well as to decide upon the corresponding decision variables. By incorporating the auction participation cost of the bidders and the operational cost of the seller, we demonstrate that these two costs play an important role in the choice of a selling format. We first characterize and identify the customers' decision rule for buy-price auction and then present the seller's optimal choices by comparing the performance of the three formats. Through a comprehensive numerical study, we investigate the performance of the three selling formats by changing the experimental factors.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0925-5273(10)00186-6
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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 127 (2010)
    Issue (Month): 1 (September)
    Pages: 147-157

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    Handle: RePEc:eee:proeco:v:127:y:2010:i:1:p:147-157
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. Patrick Bajari & Ali Hortaçsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
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    4. Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September.
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    6. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    7. Ruqu Wang, 1998. "Auctions versus Posted-Price Selling: The Case of Correlated Private Valuations," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 395-410, May.
    8. Wolfstetter, Elmar, 1996. " Auctions: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 10(4), pages 367-420, December.
    9. Sun, Daewon, 2008. "Dual mechanism for an online retailer," European Journal of Operational Research, Elsevier, vol. 187(3), pages 903-921, June.
    10. René Caldentey & Gustavo Vulcano, 2007. "Online Auction and List Price Revenue Management," Management Science, INFORMS, vol. 53(5), pages 795-813, May.
    11. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 227-252, September.
    12. Hila Etzion & Edieal Pinker & Abraham Seidmann, 2006. "Analyzing the Simultaneous Use of Auctions and Posted Prices for Online Selling," Manufacturing & Service Operations Management, INFORMS, vol. 8(1), pages 68-91, March.
    13. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
    14. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    15. Gustavo Vulcano & Garrett van Ryzin & Costis Maglaras, 2002. "Optimal Dynamic Auctions for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 4(1), pages 7-11.
    16. Gustavo Vulcano & Garrett van Ryzin & Costis Maglaras, 2002. "Optimal Dynamic Auctions for Revenue Management," Management Science, INFORMS, vol. 48(11), pages 1388-1407, November.
    17. Steven A. Matthews, 1995. "A Technical Primer on Auction Theory I: Independent Private Values," Discussion Papers 1096, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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