Content area
Full Text
Econ Theory (2009) 38:939
DOI 10.1007/s00199-006-0182-7
SYMPOSIUM
Received: 25 May 2005 / Revised: 26 July 2006 / Published online: 23 December 2006 Springer-Verlag 2006
Abstract eBay and Yahoo allow sellers to list their auctions with a buy price at which a bidder may purchase the item immediately. On eBay, the buy-now option disappears once a bid is placed, while on Yahoo the buy-now option remains in effect throughout the auction. We show that when bidders are risk averse, both types of auctions raise seller revenue for a wide range of buy prices. The Yahoo format raises more revenue than the eBay format when bidders have either CARA or DARA. Bidders with DARA prefer the eBay auction, while bidders with CARA are indifferent between the two.
Keywords Auction Buy price Yahoo eBay Risk aversion JEL Classication Numbers D44 D82 L86
1 Introduction
The expansion of commerce conducted over the Internet has sparked a surge of interest in auctions and the emergence of new auction forms.1 A new twist in online auction formats appears in Yahoo and eBay auctions. In 1999 Yahoo introduced the Buy-Now feature into its ascending bid auctions. The Buy-Now feature allows a
Part of this work was completed while Reynolds was a visitor at Instituto de Analisys Economico in Barcelona and while Wooders was a visitor at Hong Kong University of Science and Technology. We are grateful to these institutions for their hospitality.
S. S. Reynolds J. Wooders (B)
Department of Economics, University of Arizona, Tucson, AZ 85721-0108, USA E-mail: [email protected]: [email protected]
1 Lucking-Reiley (2000) describes the wide variety of online auction formats that were being used as of 1999.
Stanley S. Reynolds John Wooders
Auctions with a buy price
10 S. S. Reynolds, J. Wooders
seller to set a price, termed a buy price, at which any bidder may purchase the item at any time during the auction.2 Since the buy price remains in effect throughout the auction, this feature allows the seller to post a maximum price for the item. In 2000 eBay introduced its own version of a xed price feature into its online auctions via the Buy It Now option. In contrast to the Yahoo format, eBay permits bidders to select the buy price only at the opening of...