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Auctions with a Buy Price

  • John Wooders
  • Stanley S. Reynolds

Internet auctions on eBay and Yahoo allow sellers to list their auctions with a Buy-Now option. In such auctions the seller sets a buy price at which a bidder may purchase the item immediately and end the auction. In the eBay version of a buy-now auction, the buy-now option disappears as soon as a bid is placed, while in the Yahoo version the buy-now option remains in effect throughout the auction. When bidders are risk neutral there is no advantage to introducing a buy price in either an eBay or Yahoo auction. When bidders are risk averse, introducing a buy price raises seller revenue in both the eBay and the Yahoo auction for a wide range of buy prices. We show that while the Yahoo format raises more revenue than the eBay format (when the reserve and the buy prices are the same in both auctions), the auctions are utility equivalent from the bidders' perspective

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 130.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:130
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  1. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
  2. Peters,M. & Severinov,S., 2001. "Internet auctions with many traders," Working papers 11, Wisconsin Madison - Social Systems.
  3. Steven Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004. "Buy it Now: A Hybrid Internet Market Institution," Industrial Organization 0412003, EconWPA.
  4. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, vol. 38(1), pages 9-39, January.
  5. Roth, Alvin & Ockenfels, Axel & Ariely, Dan, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," Scholarly Articles 2579649, Harvard University Department of Economics.
  6. Burguet, Roberto, 2007. "Right to choose in oral auctions," Economics Letters, Elsevier, vol. 95(2), pages 167-173, May.
  7. 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.
  8. Giuseppe Lopomo, 2004. "The English Auction Is Optimal Among Simple Sequential Auctions," Levine's Bibliography 122247000000000369, UCLA Department of Economics.
  9. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May.
  10. 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.
  11. René Kirkegaard & Per Baltzer Overgaard, 2002. "Buy-Out Prices in Online Auctions: Multi-Unit Demand," CIE Discussion Papers 2003-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Feb 2003.
  12. Roberto Burguet, 2000. "Auction theory: a guided tour," Investigaciones Economicas, Fundación SEPI, vol. 24(1), pages 3-50, January.
  13. Timothy Mathews & Brett Katzman, 2006. "The role of varying risk attitudes in an auction with a buyout option," Economic Theory, Springer, vol. 27(3), pages 597-613, 04.
  14. Timothy Mathews, 2003. "A Risk Averse Seller in a Continuous Time Auction with a Buyout Option," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 5(2), January.
  15. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
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