Revenue in first-price auctions with a buy-out price and risk-averse bidders

William E. Gryc ()
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William E. Gryc: Muhlenberg College

Journal of Economics, 2020, vol. 129, issue 2, No 1, 103-142

Abstract: Abstract We model the “Buy-It-Now or Best Offer” eBay listing option as a first-price auction with a buy-out price and consider seller revenue when bidders are risk-averse. In this model we consider a discrete setting and a continuous setting. We show that a buy-out price in a first-price auction can increase seller revenue in the discrete setting but not in the continuous setting. Furthermore, we prove that in either setting a second-price auction with an optimally chosen buy-out price will never generate more expected revenue than a first-price auction with an optimally chosen buy-out price. These theoretical results support the thesis that a first-price mechanism is superior in expected revenue generation to a second-price mechanism in an online marketplaces where sellers are risk-neutral and buyers are risk-averse and explain the prevalence of “Buy-It-Now or Best Offer” listings on eBay over the traditional eBay auction.

Keywords: Auction; Best offer; Buy-out; eBay; Risk aversion (search for similar items in EconPapers)
JEL-codes: D44 D82 L86 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:129:y:2020:i:2:d:10.1007_s00712-019-00674-8

DOI: 10.1007/s00712-019-00674-8

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