Temporary and Permanent Buyout Prices in Online Auctions
Name
IMST030.pdf
Size
245.74 KB
Format
Adobe PDF
Checksum (MD5)
97630cb6dbf9f40440a74b6e866901e4
Author(s)
Gupta, Shobhit
Gallien, Jérémie
Date Issued
January 2005
Series/Report no.
Innovation in Manufacturing Systems and Technology (IMST);
Abstract
Increasingly used in online auctions, buyout prices allow bidders to instantly purchase the item listed. We distinguish two types: a temporary buyout option disappears if a bid above the reserve price is made; a permanent one remains throughout the auction or until it is exercised. In a model featuring time-sensitive bidders with uniform valuations and Poisson arrivals but endogenous bidding times, we focus on finding temporary and permanent buyout prices maximizing the seller's discounted revenue, and examine the relative benefit of using each type of option in various environments. We characterize equilibrium bidder strategies in both cases and then solve the problem of maximizing seller's utility by simulation. Our numerical experiments suggest that buyout options may significantly increase a seller’s revenue. Additionally, while a temporary buyout option promotes early bidding, a permanent option gives an incentive to the bidders to bid late, thus leading to concentrated bids near the end of the auction.
Subjects
buyout option
online auction
Nash equilibrium
Persistent DSpace Link
