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Optimal strategy models to maximise revenues in online auctions with 'buy it now'

Author

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  • Jing Zhou
  • Hao Lv
  • Hui Yang

Abstract

In this article, fixed-price and standard second-price English online auctions are combined in a pricing format that offers customers the option of ending an auction at the 'buy-it-now' (BIN) price. The decision problems of both the customer (bidder) and the seller are discussed, focusing on the response of the time sensitive customer to the BIN auction. The decision model for time-sensitive customers in this pricing format is given, and the optimal strategy is proposed together with the indifference curve. It is pointed out that the customer can make a decision according to the indifference curve proposed in this article. The characteristics of the indifference curve and the effect of the time-sensitivity factor on the customer's decision are discussed. This article also discusses the seller's decision problem, which is how to set the optimal BIN price based on the response of time-sensitive customers. Under the assumption that customers' valuations are uniformly distributed, a numerical example is given. Some useful findings are obtained.

Suggested Citation

  • Jing Zhou & Hao Lv & Hui Yang, 2009. "Optimal strategy models to maximise revenues in online auctions with 'buy it now'," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 3(4), pages 393-407.
    • Handle: RePEc:ids:ijrevm:v:3:y:2009:i:4:p:393-407
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