IDEAS home Printed from https://ideas.repec.org/p/spo/wpecon/infohdl2441-5kht5rc22p99sq5tol4efe4ssb.html
   My bibliography  Save this paper

Pricing and Fees in Auction Platforms with Two-Sided Entry

Author

Listed:
  • Marleen Marra

    (Département d'économie)

Abstract

This paper presents, solves, and estimates the first structural auction model with seller selection. This allows me to quantify network effects arising from endogenous bidder and seller entry into auction platforms, facilitating the estimation of theoretically ambiguous fee impacts by tracing them through the game. Relevant model primitives are identified from variation in second-highest bids and reserve prices. My estimator builds off the discrete choice literature to address the double nested fixed point characterization of the entry equilibrium. Using new wine auction data, I estimate that this platform’s revenues increase up to 60% when introducing a bidder discount and simultaneously increasing seller fees. More bidders enter when the platform is populated with lower-reserve setting sellers, driving up prices. Moreover, I show that meaningful antitrust damages can be estimated in a platform setting despite this two-sidedness.

Suggested Citation

  • Marleen Marra, 2019. "Pricing and Fees in Auction Platforms with Two-Sided Entry," Sciences Po Economics Discussion Papers 2020-02, Sciences Po Departement of Economics.
  • Handle: RePEc:spo:wpecon:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb
    as

    Download full text from publisher

    File URL: https://spire.sciencespo.fr/hdl:/2441/5kht5rc22p99sq5tol4efe4ssb/resources/2020-marra-pricing-and-fees-in-auction-platforms-with-two-sided-entry.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Matthew Gentry & Tong Li, 2014. "Identification in Auctions With Selective Entry," Econometrica, Econometric Society, vol. 82(1), pages 315-344, January.
    2. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    3. Michael Dinerstein & Liran Einav & Jonathan Levin & Neel Sundaresan, 2018. "Consumer Price Search and Platform Design in Internet Commerce," American Economic Review, American Economic Association, vol. 108(7), pages 1820-1859, July.
    4. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
    5. Gentry, Matthew & Li, Tong & Lu, Jingfeng, 2017. "Auctions with selective entry," Games and Economic Behavior, Elsevier, vol. 105(C), pages 104-111.
    6. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(1), pages 3-42, August.
    7. Marc Rysman, 2007. "An Empirical Analysis Of Payment Card Usage," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 1-36, March.
    8. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    9. James W. Roberts & Andrew Sweeting, 2013. "When Should Sellers Use Auctions?," American Economic Review, American Economic Association, vol. 103(5), pages 1830-1861, August.
    10. Patrick Bajari & Ali Hortaçsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
    11. Orley Ashenfelter & Kathryn Graddy, 2005. "Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 3-20.
    12. Renato Gomes, 2014. "Optimal auction design in two-sided markets," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 248-272, June.
    13. Tong Li & Xiaoyong Zheng, 2009. "Entry and Competition Effects in First-Price Auctions: Theory and Evidence from Procurement Auctions," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1397-1429.
    14. Bernard Elyakime & Jean-Jacques Laffont & Patrice Loisel & Quang Vuong, 1994. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," Annals of Economics and Statistics, GENES, issue 34, pages 71-114.
    15. Anwar, Sajid & McMillan, Robert & Zheng, Mingli, 2006. "Bidding behavior in competing auctions: Evidence from eBay," European Economic Review, Elsevier, vol. 50(2), pages 307-322, February.
    16. Roger B. Myerson, 1998. "Population uncertainty and Poisson games," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(3), pages 375-392.
    17. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
    18. Dominic Coey & Bradley J. Larsen & Brennan C. Platt, 2020. "Discounts and Deadlines in Consumer Search," American Economic Review, American Economic Association, vol. 110(12), pages 3748-3785, December.
    19. Kenneth Hendricks & Alan Sorensen, 2018. "Dynamics and Efficiency in Decentralized Online Auction Markets," NBER Working Papers 25002, National Bureau of Economic Research, Inc.
    20. Hiroyuki Kasahara & Katsumi Shimotsu, 2012. "Sequential Estimation of Structural Models With a Fixed Point Constraint," Econometrica, Econometric Society, vol. 80(5), pages 2303-2319, September.
    21. Minjae Song, 2013. "Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising," 2013 Meeting Papers 1264, Society for Economic Dynamics.
    22. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2013. "What model for entry in first-price auctions? A nonparametric approach," Journal of Econometrics, Elsevier, vol. 176(1), pages 46-58.
    23. Elena Krasnokutskaya & Katja Seim, 2011. "Bid Preference Programs and Participation in Highway Procurement Auctions," American Economic Review, American Economic Association, vol. 101(6), pages 2653-2686, October.
    24. Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values at First-Price Sealed-Bid Auctions," NBER Working Papers 10105, National Bureau of Economic Research, Inc.
    25. Bajari, Patrick & Hortacsu, Ali, 2003. "The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-355, Summer.
    26. Paarsch, H.J., 1992. "Empirical Models of Auctions and an Application to British Columbian Timber Sales," UWO Department of Economics Working Papers 9212, University of Western Ontario, Department of Economics.
    27. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    28. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, vol. 91(3), pages 399-427, June.
    29. Brent R. Hickman & Timothy P. Hubbard & Harry J. Paarsch, 2017. "Identification and estimation of a bidding model for electronic auctions," Quantitative Economics, Econometric Society, vol. 8(2), pages 505-551, July.
    30. Deltas, George & Jeitschko, Thomas D., 2007. "Auction hosting site pricing and market equilibrium with endogenous bidder and seller participation," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1190-1212, December.
    31. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, vol. 180(2), pages 198-216.
    32. Evans David S., 2003. "Some Empirical Aspects of Multi-sided Platform Industries," Review of Network Economics, De Gruyter, vol. 2(3), pages 1-19, September.
    33. Laffont, Jean-Jacques & Ossard, Herve & Vuong, Quang, 1995. "Econometrics of First-Price Auctions," Econometrica, Econometric Society, vol. 63(4), pages 953-980, July.
    34. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
    35. Michael Egesdal & Zhenyu Lai & Che‐Lin Su, 2015. "Estimating dynamic discrete‐choice games of incomplete information," Quantitative Economics, Econometric Society, vol. 6(3), pages 567-597, November.
    36. Martin Pesendorfer & Philipp Schmidt-Dengler, 2010. "Sequential Estimation of Dynamic Discrete Games: A Comment," Econometrica, Econometric Society, vol. 78(2), pages 833-842, March.
    37. Liran Einav & Chiara Farronato & Jonathan Levin & Neel Sundaresan, 2018. "Auctions versus Posted Prices in Online Markets," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 178-215.
    38. Newberry, Peter W., 2015. "The effect of competition on eBay," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 107-118.
    39. James W. Roberts, 2013. "Unobserved heterogeneity and reserve prices in auctions," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 712-732, December.
    40. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
    41. Diego Moreno & John Wooders, 2011. "Auctions with heterogeneous entry costs," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 313-336, June.
    42. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    43. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
    44. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    45. Han Hong & Matthew Shum, 2002. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 871-898.
    46. Ginsburgh, Victor & Legros, Patrick & Sahuguet, Nicolas, 2010. "On the incidence of commissions in auction markets," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 639-644, November.
    47. Hickman, Brent, 2010. "On the pricing rule in electronic auctions," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 423-433, September.
    48. Evans David S. & Schmalensee Richard, 2010. "Failure to Launch: Critical Mass in Platform Businesses," Review of Network Economics, De Gruyter, vol. 9(4), pages 1-28, December.
    49. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    50. Li, Tong & Zheng, Xiaoyong, 2012. "Information acquisition and/or bid preparation: A structural analysis of entry and bidding in timber sale auctions," Journal of Econometrics, Elsevier, vol. 168(1), pages 29-46.
    51. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
    52. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
    53. Joachim Freyberger & Bradley J. Larsen, 2017. "Identification in Ascending Auctions, with an Application to Digital Rights Management," NBER Working Papers 23569, National Bureau of Economic Research, Inc.
    54. Andrés Aradillas‐López & Amit Gandhi & Daniel Quint, 2013. "Identification and Inference in Ascending Auctions With Correlated Private Values," Econometrica, Econometric Society, vol. 81(2), pages 489-534, March.
    55. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-148, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marleen Marra, 2019. "Pricing and Fees in Auction Platforms with Two-Sided Entry," Sciences Po publications 2020-02, Sciences Po.
    2. Marleen Marra, 2019. "Pricing and Fees in Auction Platforms with Two-Sided Entry," Working Papers hal-03393068, HAL.
    3. Nathalie Gimenes, 2014. "Econometrics of Ascending Auctions by Quantile Regression," Working Papers, Department of Economics 2014_25, University of São Paulo (FEA-USP).
    4. Gentry, Matthew & Li, Tong & Lu, Jingfeng, 2017. "Auctions with selective entry," Games and Economic Behavior, Elsevier, vol. 105(C), pages 104-111.
    5. Ma, Jun & Marmer, Vadim & Shneyerov, Artyom, 2019. "Inference for first-price auctions with Guerre, Perrigne, and Vuong’s estimator," Journal of Econometrics, Elsevier, vol. 211(2), pages 507-538.
    6. Emmanuel Guerre & Yao Luo, 2019. "Nonparametric Identification of First-Price Auction with Unobserved Competition: A Density Discontinuity Framework," Papers 1908.05476, arXiv.org, revised Jan 2022.
    7. Tong Li & Jingfeng Lu & Li Zhao, 2015. "Auctions with selective entry and risk averse bidders: theory and evidence," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 524-545, September.
    8. Sweeting, Andrew & Bhattacharya, Vivek, 2015. "Selective entry and auction design," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 189-207.
    9. Luo, Yao, 2020. "Unobserved heterogeneity in auctions under restricted stochastic dominance," Journal of Econometrics, Elsevier, vol. 216(2), pages 354-374.
    10. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, vol. 180(2), pages 198-216.
    11. Xiaohong Chen & Matthew Gentry & Tong Li & Jingfeng Lu, 2020. "Identification and Inference in First-Price Auctions with Risk Averse Bidders and Selective Entry," Cowles Foundation Discussion Papers 2257, Cowles Foundation for Research in Economics, Yale University.
    12. Diego Aycinena & Lucas Rentschler, 2018. "Auctions with endogenous participation and an uncertain number of bidders: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 21(4), pages 924-949, December.
    13. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    14. Robert Clark & Decio Coviello & Jean-Fran�ois Gauthier & Art Shneyerov, 2018. "Bid Rigging and Entry Deterrence in Public Procurement: Evidence from an Investigation into Collusion and Corruption in Quebec," Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(3), pages 301-363.
    15. An, Yonghong & Hu, Yingyao & Shum, Matthew, 2010. "Estimating first-price auctions with an unknown number of bidders: A misclassification approach," Journal of Econometrics, Elsevier, vol. 157(2), pages 328-341, August.
    16. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2013. "What model for entry in first-price auctions? A nonparametric approach," Journal of Econometrics, Elsevier, vol. 176(1), pages 46-58.
    17. Seokjoo Andrew Chang, 2012. "Time dynamics of overlapping e-auction mechanisms: Information transfer, strategic user behavior and auction revenue," Information Systems Frontiers, Springer, vol. 14(2), pages 331-342, April.
    18. Philippe Jehiel & Laurent Lamy, 2015. "On absolute auctions and secret reserve prices," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 241-270, June.
    19. Philippe Jehiel & Laurent Lamy, 2011. "Absolute auctions and secret reserve prices: Why are they used?," Levine's Working Paper Archive 786969000000000316, David K. Levine.
    20. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.

    More about this item

    Keywords

    Auctions with entry; Two-sided markets; Nonparametric identification; Estimation; Nested fixed point;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spo:wpecon:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb. 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: . General contact details of provider: https://edirc.repec.org/data/cfmspfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sciences Po Departement of Economics Series Handler (email available below). General contact details of provider: https://edirc.repec.org/data/cfmspfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.