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Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods

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  • Chia-Hui Chen

Abstract

A buyer suggests prices to N sellers in a time period and buys from the seller who accepts the bid first. The number of bidding rounds is determined by how frequently the buyer can make an offer. We show that with no limit on the frequency and without discounting, the price path is either kept flat initially with large jumps at the end or increasing steadily over time. Which class of path occurs in equilibrium depends on the buyer's trade-off between committing to a price ceiling versus finely screening the sellers' costs. With discounting, limiting the number of rounds mitigates the delay caused by the reluctance to raise bids in the first class of equilibrium and therefore can benefit the buyer. This result suggests why, in reality, bargaining parties often take measures to make their offers rigid and consequently force themselves to make fewer offers. Copyright , Oxford University Press.

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  • Chia-Hui Chen, 2012. "Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1341-1369.
  • Handle: RePEc:oup:restud:v:79:y:2012:i:4:p:1341-1369
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    File URL: http://hdl.handle.net/10.1093/restud/rds005
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    Cited by:

    1. Johannes Hörner & Larry Samuelson, 2011. "Managing Strategic Buyers," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 379-425.
    2. Chia-Hui Chen & Junichiro Ishida, 2013. "Auctions Versus Negotiations: The Role of Price Discrimination," ISER Discussion Paper 0873, Institute of Social and Economic Research, Osaka University.
    3. William Fuchs & Andrzej Skrzypacz, 2013. "Bargaining with Deadlines and Private Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 219-243, November.
    4. Chia-Hui Chen & Junichiro Ishida, 2015. "A Tenure-Clock Problem," ISER Discussion Paper 0919, Institute of Social and Economic Research, Osaka University.
    5. Chia-Hui Chen & Junichiro Ishida, 2017. "Dynamic Performance Evaluation with Deadlines: The Role of Commitment," ISER Discussion Paper 1015, Institute of Social and Economic Research, Osaka University.
    6. Qingmin Liu & Konrad Mierendorff & Xianwen Shi, 2013. "Auctions with Limited Commitment," Working Papers tecipa-504, University of Toronto, Department of Economics.
    7. Huang, Ching-I & Chen, Jong-Rong & Lee, Chiu-Yu, 2013. "Buyer behavior under the Best Offer mechanism: A theoretical model and empirical evidence from eBay Motors," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 11-33.
    8. Robert Zeithammer, 2015. "Optimal selling strategies when buyers name their own prices," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 135-171, June.

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