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Dynamics and Efficiency in Decentralized Online Auction Markets

Author

Listed:
  • Kenneth Hendricks
  • Alan Sorensen

Abstract

Economic theory suggests that decentralized markets can achieve efficient outcomes if buyers and sellers have many opportunities to trade. We examine this idea empirically by developing a tractable dynamic model of bidding in an overlapping, sequential auction environment and estimating the model with detailed data from eBay. Bidders in the model discount their bids to reflect the option value of losing – if they lose, they can come back to try again – and the structure of the model makes it so they effectively bid against a stationary distribution of rivals. We find that dynamic participation makes the market meaningfully more efficient than a benchmark in which buyers have only one opportunity to bid, but the observed outcomes still fall well short of the fully efficient competitive equilibrium.

Suggested Citation

  • Kenneth Hendricks & Alan Sorensen, 2018. "Dynamics and Efficiency in Decentralized Online Auction Markets," NBER Working Papers 25002, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25002
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    Cited by:

    1. Joachim Freyberger & Bradley J. Larsen, 2022. "Identification in ascending auctions, with an application to digital rights management," Quantitative Economics, Econometric Society, vol. 13(2), pages 505-543, May.
    2. Caio Waisman, 2021. "Selling mechanisms for perishable goods: An empirical analysis of an online resale market for event tickets," Quantitative Marketing and Economics (QME), Springer, vol. 19(2), pages 127-178, June.
    3. Marleen Marra, 2019. "Pricing and Fees in Auction Platforms with Two-Sided Entry," Working Papers hal-03393068, HAL.
    4. repec:hal:spmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    5. repec:hal:wpspec:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    6. Hanzhe Zhang, 2021. "Prices versus auctions in large markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1297-1337, November.
    7. Dominic Coey & Bradley J. Larsen & Kane Sweeney & Caio Waisman, 2021. "Scalable Optimal Online Auctions," Marketing Science, INFORMS, vol. 40(4), pages 593-618, July.

    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L0 - Industrial Organization - - General

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