Analysis and Design of Business-to-Consumer Online Auctions
Business-to-consumer online auctions form an important element in the portfolio of mercantile processes that facilitate electronic commerce activity. Much of traditional auction theory has focused on analyzing single-item auctions in isolation from the market context in which they take place. We demonstrate the weakness of such approaches in online settings where a majority of auctions are multiunit in nature. Rather than pursuing a classical approach and assuming knowledge of the distribution of consumers' valuations, we emphasize the largely ignored discrete and sequential nature of such auctions. We derive a general expression that characterizes the multiple equilibria that can arise in such auctions and segregate these into desirable and undesirable categories. Our analytical and empirical results, obtained by tracking real-world online auctions, indicate that bid increment is an important factor amongst the control factors that online auctioneers can manipulate and control. We show that consumer bidding strategies in such auctions are not uniform and that the level of bid increment chosen influences them. With a motive of providing concrete strategic directions to online auctioneers, we derive an absolute upper bound for the bid increment. Based on the theoretical upper bound we propose a heuristic decision rule for setting the bid increment. Empirical evidence lends support to the hypothesis that setting a bid increment higher than that suggested by the heuristic decision rule has a negative impact on the auctioneer's revenue.
Volume (Year): 49 (2003)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yamey, B S, 1972. "Why 22,31,000 for a Velazquez?: An Auction Bidding Rule," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1323-1327, Nov.-Dec..
- Slovic, Paul, 1972. "Psychological Study of Human Judgment: Implications for Investment Decision-Making," Journal of Finance, American Finance Association, vol. 27(4), pages 779-799, September.
- Randolph E. Bucklin & James M. Lattin, 1991. "A Two-State Model of Purchase Incidence and Brand Choice," Marketing Science, INFORMS, vol. 10(1), pages 24-39.
- Alvin E. Roth & Axel Ockenfels, 2000. "Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet," NBER Working Papers 7729, National Bureau of Economic Research, Inc.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Michael H. Rothkopf & Ronald M. Harstad, 1994. "Modeling Competitive Bidding: A Critical Essay," Management Science, INFORMS, vol. 40(3), pages 364-384, March.
- Patrick Bajari & Ali Hortacsu, 2000. "Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions," Econometric Society World Congress 2000 Contributed Papers 1927, Econometric Society.
- Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:49:y:2003:i:1:p:85-101. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.