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Buy-Out Prices in Online Auctions: Multi-Unit Demand

  • René Kirkegaard

    (School of Economics and Management, University of Aarhus)

  • Per Baltzer Overgaard

    (School of Economics and Management, University of Aarhus)

On many online auction sites it is now possible for a seller to augment his auction with a maximum or buy-out price. The use of this instrument has been justified in 'one-shot' auctions by appeal to impatience or risk aversion. Here we o.er additional justification by observing that trading on internet auctions is not of a 'one-shot' nature, but that market participants expect more transactions in the future. This has important implications when bidders desire multiple objects. Specifically, it is shown that an early seller has an incentive to introduce a buy-out price, if similar products are o.ered later on by other sellers. The buy-out price will increase revenue in the current auction, but revenue in future auctions will decrease, as will the sum of revenues. In contrast, if a single seller owns multiple units, overall revenue will increase, if buyers anticipate the use of buy-out prices in the future by this seller. In both cases, an optimally chosen buy-outprice introduces potential inefficiencies in the allocation.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2003-01.

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Length: 48 pages
Date of creation: Oct 2002
Date of revision: Feb 2003
Handle: RePEc:kud:kuieci:2003-01
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  1. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  2. Katzman, Brett, 1999. "A Two Stage Sequential Auction with Multi-Unit Demands," Journal of Economic Theory, Elsevier, vol. 86(1), pages 77-99, May.
  3. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  4. John Wooders & Stanley S. Reynolds, 2004. "Auctions with a Buy Price," Econometric Society 2004 North American Summer Meetings 130, Econometric Society.
  5. Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-28, Winter.
  6. 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.
  7. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
  8. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 227-52, September.
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