When are Retail Stores Preferable to Auctions ?

Alexandre Ziegler

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: Although auctions have many desirable properties, they have two undesirable features from buyers' perspective: Auctions impose waiting costs on buyers, which leads to "false trading". Sometimes, buyers pass up other valuable opportunities while waiting for the results of the auction. Other times, buyers make undesired duplicate purchases. As a result, the seller will prefer running a retail store, where the seller commits to sell at a given price, to running an auction. We show that stores are optimal if the good is perishable and/or becomes obsolete quickly. Stores are also preferred when the market is thin and when alternatives for the good being sold are easy to find. Auctions are preferred when the good is storable, when it does not become obsolete too quickly, when the market is thick and when no substitutes are available for the good being sold. These predictions are consistent with a number of observed phenomena.

Keywords: store; auction; optimal selling institution (search for similar items in EconPapers)
JEL-codes: D40 D44 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-03
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:02.03

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