Munich Personal RePEc Archive

A dynamic model of auctions with buy-it-now: theory and evidence

Chen, Jong-Rong and Chen, Kong-Pin and Chou, Chien-Fu and Huang, Ching-I (2006): A dynamic model of auctions with buy-it-now: theory and evidence.

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Abstract

In the ascending-price auctions with Yahoo!-type buy-it-now (BIN), we characterize and derive the closed-form solution for the optimal bidding strategy of the bidder and the optimal BIN price of the seller when they are both risk-averse. The seller is shown to be strictly better o with the BIN option, while the bidders are better o only when their valuation is greater than a threshold value. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN. This prediction is conrmed by our data collected from Taiwan's Yahoo! auctions of Nikon digital cameras.

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