Auctions vs. fixed pricing: Competing for budget constrained buyers

Cemil Selcuk

Games and Economic Behavior, 2017, vol. 103, issue C, 262-285

Abstract: We investigate price mechanism selection in a setting where sellers compete for budget constrained buyers by adopting either fixed pricing or auctions (first or second price). We show that first and second price auctions are payoff equivalent when some bidders are financially constrained, so sellers are indifferent to adopt either format. We characterize possible equilibria and show that if the budget is high, then sellers compete via fixed pricing, if it is low then they compete via auctions, and if it is moderate then they mix, so both mechanisms coexist. The budget constraint becomes less binding if sellers use entry fees. Interestingly an improvement of the budget—e.g. letting customers pay in installments—may lead to fewer trades and a loss of efficiency.

Keywords: Budget constraint; Competing auctions; Fixed pricing (search for similar items in EconPapers)
JEL-codes: C78 D4 D83 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:103:y:2017:i:c:p:262-285

DOI: 10.1016/j.geb.2016.01.003

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