Buy-it-now or Take-a-chance: Price Discrimination through Randomized Auctions

L. Elisa Celis, Gregory Lewis, Markus Mobius () and Hamid Nazerzadeh

No 18590, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.

JEL-codes: D4 D44 D47 D82 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind, nep-mic and nep-mkt
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Published as L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2014. "Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions," Management Science, INFORMS, vol. 60(12), pages 2927-2948, December.

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