A model of descending auction with hidden starting price and endogenous price decrease
Several new auction formats are spreading over the Internet. They have usually the aim of raising revenues by increasing the number of participant, who will pay a participation fee, rather than selling the object at the highest possible price. The aim of this paper is to study a format of descending price auction with hidden starting price and endogenous price decrease. In this format, usually known as price reveal auction, the price is hidden and players have to pay a fee to observe it. The price decreases only if a bidder observes it and not because of the time, like in the usual Dutch format. In the following pages, we will analyse the effect of the concealment of the price in a standard Dutch auction. We will, then, define a model for price reveal auction, and analyse its most important aspects. We will, finally, derive players' best strategy and the Nash equilibrium of the game. Our result is that players use a threshold strategy to decide whether or not participate the auction (observe the price and pay the fixed fee). However, in our model there is not a separating equilibrium. Moreover, we will find that there is a process of beliefs updating, which takes account of the time as a signal of the price. Therefore, if the game continues, players infer that the price is too high and update their beliefs accordingly. We will finally compare our theoretical results with empirical data about 135 price reveal auctions held between December 2009 and April 2011 on the website Bidster.com.
|Date of creation:||01 Oct 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jürgen Eichberger & Dmitri Vinogradov, 2008. "Least Unmatched Price Auctions: A First Approach," Working Papers 0471, University of Heidelberg, Department of Economics, revised Jul 2008.
- Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
- Paulo K. Monteiro & Flavio M. Menezes, 2000. "original papers : Auctions with endogenous participation," Review of Economic Design, Springer;Society for Economic Design, vol. 5(1), pages 71-89.
- Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August.
- Klemperer, P., 1999.
"Auction Theory: a Guide to the Literature,"
1999-w12, Economics Group, Nuffield College, University of Oxford.
- Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
- McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
- Harold Houba & Dinard van der Laan & Dirk Veldhuizen, 2008. "The Unique-lowest Sealed-bid Auction," Tinbergen Institute Discussion Papers 08-049/1, Tinbergen Institute.
- McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
- Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
- Andrea Gallice, 2010. "Price Reveal Auctions on the Internet," Carlo Alberto Notebooks 147, Collegio Carlo Alberto.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35773. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.