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Prices versus Auctions in Large Markets

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  • Zhang, Hanzhe

    (Michigan State University, Department of Economics)

Abstract

This paper studies the use of posted prices versus auctions in a large dynamic market with many short-lived sellers and long-lived buyers. Although a reserve-price auction maximizes the expected revenue, the optimal revenue decreases when the market becomes more buyer-friendly; namely, when buyers survive longer, face fewer competitors, and become more patient. As the market becomes more buyer-friendly, the revenue advantage from a reserve-price auction over posting a price reduces, but using posted prices would lead to sale and allocative inefficiencies.

Suggested Citation

  • Zhang, Hanzhe, 2019. "Prices versus Auctions in Large Markets," Working Papers 2019-13, Michigan State University, Department of Economics.
  • Handle: RePEc:ris:msuecw:2019_013
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    Cited by:

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    More about this item

    Keywords

    optimal sales mechanism; reserve-price auction; posted price;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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