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Effects of Information-Revelation Policies Under Market-Structure Uncertainty

Author

Listed:
  • Ashish Arora

    () (Heinz School of Public Policy and Management, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • Amy Greenwald

    () (Computer Science Department, Brown University, Providence, Rhode Island 02912)

  • Karthik Kannan

    () (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Ramayya Krishnan

    () (Heinz School of Public Policy and Management, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

Geographically dispersed sellers in electronic reverse marketplaces such as those hosted by market-makers like Ariba are uncertain about the number of competitors they face in any given market session. We refer to this uncertainty about the number of competitors as market-structure uncertainty. Over the course of several market sessions sellers learn about the competitive nature of the marketplace. How they learn to reduce the market-structure uncertainty depends on the market-transparency scheme, or the revelation policy adopted. A revelation policy determines the extent to which information--the number of sellers in a session, their bidding patterns, etc.--is revealed to sellers. Because these policies control what sellers learn and how they bid in future sessions, they determine buyer surplus. Possibly because market-structure uncertainty is more prevalent in information technology-enabled marketplaces than traditional ones, prior work has not addressed the impact of revelation policies on this type of uncertainty. Currently, there is little guidance available to buyers in choosing the appropriate revelation policy. To address this information-technology-enabled problem, we use game theory to compare the buyer surplus generated under a set of revelation policies commonly used in electronic reverse marketplaces. We demonstrate that the policy that generates the least amount of market-structure uncertainty for the sellers always maximizes buyer surplus. We further investigate to provide intuition regarding how bidders' reactions to overcome uncertainty differs with the nature of uncertainty, and how those reactions impact buyer surplus.

Suggested Citation

  • Ashish Arora & Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2007. "Effects of Information-Revelation Policies Under Market-Structure Uncertainty," Management Science, INFORMS, vol. 53(8), pages 1234-1248, August.
  • Handle: RePEc:inm:ormnsc:v:53:y:2007:i:8:p:1234-1248
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    File URL: http://dx.doi.org/10.1287/mnsc.1060.0688
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    References listed on IDEAS

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    Cited by:

    1. Naoko Nishimura & Timothy N. Cason & Tatsuyoshi Saijo & Yoshikazu Ikeda, 2011. "Spite and Reciprocity in Auctions," Games, MDPI, Open Access Journal, vol. 2(3), pages 1-47, September.
    2. Timothy N. Cason & Karthik N. Kannan & Ralph Siebert, 2011. "An Experimental Study of Information Revelation Policies in Sequential Auctions," Management Science, INFORMS, vol. 57(4), pages 667-688, April.
    3. Gregory E. Kersten & Tomasz Wachowicz & Margaret Kersten, 2016. "Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations," Group Decision and Negotiation, Springer, vol. 25(4), pages 693-722, July.
    4. Krishnan S. Anand & Manu Goyal, 2009. "Strategic Information Management Under Leakage in a Supply Chain," Management Science, INFORMS, vol. 55(3), pages 438-452, March.
    5. Alok Gupta & Stephen Parente & Pallab Sanyal, 2012. "Competitive bidding for health insurance contracts: lessons from the online HMO auctions," International Journal of Health Economics and Management, Springer, vol. 12(4), pages 303-322, December.
    6. Marc Bollecker & Wilfrid Azan, 2008. "Les frontières de la recherche en contrôle de gestion : une analyse des cadres théoriques mobilisés," Post-Print halshs-00522395, HAL.
    7. Aleksandar Saša Pekev{c} & Ilia Tsetlin, 2008. "Revenue Ranking of Discriminatory and Uniform Auctions with an Unknown Number of Bidders," Management Science, INFORMS, vol. 54(9), pages 1610-1623, September.

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