New information technologies allow for the design of innovative electronic markets which can improve the efficiency of trading. In this context, several internet marketplaces have recently extended the flexibility of their selling mechanisms by creating hybrid institutions which combine an auction with a fixed price offer so that buyers can choose to bid in the auction or to acquire the item for the fixed price.
Applying a Market Engineering approach, this book introduces a model of an auction with a posted price offer and investigates the characteristics of such mechanisms. It discusses the respective equilibrium strategies of both the sellers and the bidders which provide useful insights into understanding actual behavior. The theoretical results are compared with strategies of students in a controlled experiment. The experimental observations indicate shortcomings of standard economic theories and help to further improve electronic markets.
Author(s): Stefan Seifert
Series: Lecture Notes in Economics and Mathematical Systems
Edition: 1
Publisher: Springer
Year: 2006
Language: English
Pages: 194
Contents......Page 6
List of Figures......Page 9
List of Tables......Page 11
1.1 Overview......Page 13
1.2 General Background......Page 15
1.3 The Buy It Now Option on eBay......Page 16
1.4 A First Assessment......Page 17
2 Model of the APPO Market Institution......Page 19
2.1.2 Modeling the eBay Auction......Page 20
2.1.3 Timing of Bids......Page 23
2.1.4 Definition of an APPO......Page 28
2.2 Equilibrium Strategies and the Acceptance Threshold......Page 30
2.3 Properties of the Acceptance Threshold......Page 34
2.4 Revenues in an APPO......Page 41
2.5 Optimal APPOs......Page 45
2.6.1 The Model of Budish und Takeyama......Page 51
2.6.2 Thorough Analysis of Yahoo!’s Buy Price......Page 56
2.6.3 Comparison of Yahoo!’s and eBay’s Buy Price Variants......Page 57
2.6.4 Impatience and Risk Aversion......Page 59
2.6.5 Participation Costs......Page 62
2.6.6 Extension: Multi-unit Demand......Page 64
2.7 Summary......Page 66
3.1 Motivation and Research Questions......Page 71
3.2 Treatments......Page 73
3.3 Collecting Data: the Strategy Method......Page 75
3.4 Setup as a Stranger Experiment and Independency of Observations......Page 80
3.5 Further Design Parameters......Page 84
3.6 Conducting the Experiment......Page 86
3.7 Analytic Solution......Page 89
3.8 Statistical Tests for the Analysis of the Experiment......Page 92
4.1 Overview......Page 99
4.2 Individual Auction Outcomes......Page 104
4.3 Comparison of Auction Outcomes......Page 117
4.4 Behavior of the Bidders......Page 123
4.4.1 Bidding Behavior......Page 124
4.4.2 Acceptance Thresholds in the B–treatments......Page 133
4.5 Behavior of the Sellers......Page 136
4.6 Summary......Page 142
5.1 Summary of Main Results......Page 145
5.2 Limitations of the Study......Page 147
5.3 Outlook......Page 148
A.1 Basic Concepts of Game Theory......Page 151
A.2 Risk Measurement by Arrow and Pratt......Page 152
A.3 Order Statistics......Page 154
A.4 Acceptance Threshold of Bidders in Example 2.3......Page 155
B.1 Assignment of Participants to Groups......Page 157
B.2 Bidder Valuations......Page 161
B.4 Theoretical Solutions of Treatments A3 and A5......Page 162
C.4 Treatment B5: Five Bidders, PPO......Page 165
D.1 Pictures of the IW Experimental Lab......Page 174
D.2 Screenshots of the Experimental Software......Page 176
References......Page 182
Abbreviations and Symbols......Page 190
