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Congestion Pricing in an Internet Market

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Abstract

This paper analyzes a unique dataset of art auctions on eBay. We study the behavior of buyers and sellers, demand and supply, by means of a novel structural estimation approach. Our empirical framework considers the process of arrival of new bidders as well as the distribution of bidder valuations of artworks being auctioned. We use this empirical framework to quantify the e(ect of market congestion, and congestion pricing strategies implemented by the market intermediary. Because we explicitly model the process of arrival of new bidders, we can estimate the e(ect of congestion pricing on the number of bidders, the distribution of bidders’ valuations, and the final selling price. Using the structural model we can also measure the impact of congestion pricing on the revenues of the artists and the market intermediary, as well as its e(ect on consumer surplus. Our results indicate that the congestion pricing policy acts as a coordination mechanism that facilitates the match between buyers and sellers.

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  • Jose Canals-Cerda, 2005. "Congestion Pricing in an Internet Market," Working Papers 05-10, NET Institute, revised Sep 2005.
    • Handle: RePEc:net:wpaper:0510
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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