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A Dynamic Model of Auctions with Buy‐It‐Now: Theory and Evidence
Author(s) -
Chen JongRong,
Chen KongPin,
Chou ChienFu,
Huang ChingI
Publication year - 2013
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12018
Subject(s) - common value auction , bin , bidding , microeconomics , valuation (finance) , economics , transaction cost , auction theory , mathematical economics , computer science , finance , algorithm
In the ascending‐price auctions with Y ahoo!‐type buy‐it‐now ( BIN ), we characterize and derive the closed‐form solution for the optimal bidding strategy of the bidders and the optimal BIN price of the seller when they are both risk‐averse. The seller is shown to be strictly better off with the BIN option, while the bidders are better off only when their valuation is high enough. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN option. This prediction is confirmed by our data collected from T aiwan's Y ahoo! auctions.