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Buy prices in online auctions: irrationality on the internet?

Authors
Journal
Economics Letters
0165-1765
Publisher
Elsevier
Publication Date
Volume
72
Issue
3
Identifiers
DOI: 10.1016/s0165-1765(01)00438-4
Keywords
  • Buy Price
  • Auctions

Abstract

Abstract Buy prices are puzzling: it makes sense for a seller at auction to set a minimum bidding level (i.e., a reserve price), surely, but a maximum? We explore the use of maximum bidding levels (buy prices) in online auctions and provide a rational explanation for this seemingly irrational auction mechanism. We show that augmenting an English auction with a buy price can improve the seller’s profits by partially insuring (and therefore increasing the expected payment from) some risk-averse bidders. Perhaps more surprising is that the English auction augmented with a buy price can also be superior even to the first-price sealed-bid and Dutch auctions when bidders are risk averse.

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