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

Author

Listed:
  • René Kirkegaard

    (School of Economics and Management, University of Aarhus)

  • Per Baltzer Overgaard

    (School of Economics and Management, University of Aarhus)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:kud:kuieci:2003-01
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    File URL: http://www.econ.ku.dk/cie/dp/dp_2003-2006/2003-01.pdf/
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    References listed on IDEAS

    as
    1. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, August.
    2. Jane Black & David de Meza, 1992. "Systematic Price Differences Between Successive Auctionsare no Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-628, December.
    3. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    4. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 9-39, January.
    5. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-1090, October.
    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," Microeconomics 9903002, University Library of Munich, Germany.
    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 227-252, September.
    9. Katzman, Brett, 1999. "A Two Stage Sequential Auction with Multi-Unit Demands," Journal of Economic Theory, Elsevier, vol. 86(1), pages 77-99, May.
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    Cited by:

    1. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 9-39, January.
    2. Jérémie Gallien & Shobhit Gupta, 2007. "Temporary and Permanent Buyout Prices in Online Auctions," Management Science, INFORMS, vol. 53(5), pages 814-833, May.
    3. Olarte, Rafael & Haghani, Ali, 2018. "Introducing and testing a game-theoretic model for a lottery-based metering system in Minneapolis, United States," Transport Policy, Elsevier, vol. 62(C), pages 63-78.
    4. Timothy Mathews, 2006. "Bidder Welfare In An Auction With A Buyout Option," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 595-612.
    5. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
    6. René Kirkegaard & Per Baltzer Overgaard, 2008. "Buy‐out prices in auctions: seller competition and multi‐unit demands," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 770-789, September.

    More about this item

    Keywords

    sequential auctions; multi-unit demands; buy-out prices;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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