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Buy‐out prices in auctions: seller competition and multi‐unit demands

Rene Kirkegaard () and Per Overgaard ()

RAND Journal of Economics, 2008, vol. 39, issue 3, 770-789

Abstract: Online auction sites often enable sellers to add a buy‐out price. In one‐shot auctions, this has been motivated by appeal to impatience or risk aversion. We offer additional justification in a dynamic model, by showing that an early seller has an incentive to use a buy‐out price, if a similar product is offered later by another seller, and bidders desire multiple objects. Revenue in the first auction increases, but revenue in the second auction decreases, as does the sum of revenues. The buy‐out price causes the auction sequence to become inefficient, because the first item may be awarded to a bidder who should have received none.

Date: 2008
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Handle: RePEc:bla:randje:v:39:y:2008:i:3:p:770-789