Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers

A striking feature of many online sales platforms is the coexistence of multiple sales mechanisms. Items on eBay, for instance, are frequently offered through auctions, posted prices, and buy-it-now auctions. In this article, I study how this mechanism multiplicity influences the welfare of buyers and sellers. I specify and estimate a structural model of mechanism choice in online markets, in which I consider both sides of the market: On the demand side, buyers' choices among available listings are equilibrium outcomes of an entry game. On the supply side, sellers make equilibrium decisions when choosing sales mechanisms and prices. I estimate this model using data from sales of baseball tickets on eBay and calculate consumer and seller rents in three markets: the actual market with all three sales mechanisms and two counterfactual markets with auctions and fixed prices or only fixed-price listings, respectively. I find that the addition of auctions to fixed-price markets hurts sellers and risk-averse buyers but benefits risk-neutral buyers. Additionally, the consumer surplus increases when buy-it-now auctions are offered but the seller surplus is reduced further. I discuss the intuition for the cause of this result.     

Market Mechanism Choice and Real Estate Disposition: Search Versus Auction

We propose a model of mechanism choice in the disposition of real estate assets where we consider two alternatives: a search market and an auction. Within the search framework, we derive an equilibrium whereby buyers incur search costs and sellers incur holding costs for the period during which the property is not sold. In the auction alternative, the seller joins an existing pool of sellers in undertaking a multiple–object auction and pays a commission upon sale. Buyers and sellers freely choose their mechanisms, which in equilibrium are optimal given each group's conjectures about the mechanism choice of their counterpart. In equilibrium, an agent cannot benefit from deviating from his choice and each agent's beliefs are consistent with the equilibrium outcome. It is shown that (a) buyers with high search costs will choose auctions because the auction payoff imposes an upper bound on buyers' gains from search, and (b) prices at auctions will be higher. Using vacant lot sales data and a method–of–moment estimator which accounts for the presence of an endogenous discrete mechanism choice variable, we estimated a hedonic regression to detect the price effect. It was determined that, on average, lots sold for $1.44 per square foot more in auctions than in the search market, as predicted by our model.     

A flexible approach to determining financial terms of sale

With high inflation and interest rates the financial or credit terms of a sale are an increasingly important source of foods for buyers and an expensive cost for sellers. This article proposes some guidelines for setting terms of sale policies which may benefit both buyers and sellers. A method for determining the best terms alternative from the buyers perspective is also described.     

Search algorithm,repetitive information,and sales on online platforms

A prominent feature of online sales is that buyers rely on the search tools offered by platforms to process information when searching for products. We develop a model that captures how the search algorithm affects buyers’ search processes, which further influences market equilibrium and welfare. If a platform adopts a highly unequal search algorithm, buyers are likely to obtain repetitive information about a small group of sellers, which causes buyers to consider fewer options and suppresses competition. By using data from food delivery platforms, we provide empirical evidence that markets with less equal distributions of store rankings in search results have higher average prices and more concentrated sales. We suggest that regulators should restrict search algorithms from showing repetitive information.     

Matching of Buyers and Sellers by Brokers: A Comparison of Alternative Commission Structures

This note characterizes the set of Pareto optimal and stable matchings among buyers and sellers and examines the optimality of matching strategies employed by brokers under different commission structures. It is shown that the profit-maximizing matching strategy for the broker under percentage commission and flat-fee systems also maximizes the number of houses sold, but it minimizes the buyers' and sellers' surplus. On the other hand, net listing results in the sale of fewer houses, but it yields larger surplus for buyers and sellers.     

Bayesian implementation and rent extraction in a multi-dimensional procurement problem

We consider a multi-dimensional procurement problem in which sellers have private information about their costs and about a possible design flaw. The information about the design flaw is necessarily correlated. We solve for the Bayesian procurement mechanism that implements the efficient allocation at the lowest cost under the constraint that sellers are protected by limited liability. We show that the rents obtained from reporting costs truthfully can be used to reduce the rents sellers must get for reporting the flaw. We compare the efficient Bayesian mechanism to the efficient ex post incentive compatible mechanism studied by Herweg and Schmidt (2019) that is informationally less demanding.     

A Spatiotemporal Solution for the Simultaneous Sale Price and Time‐on‐the‐Market Problem

There exists an important methodological challenge when dealing with sale price and time‐on‐the‐market variables because both variables are simultaneously determined and related to the motivation of the sellers and buyers. Exploiting the fact that transactions occur over space and time, we propose a two‐stage approach based on instrumental variables (IV) built from information collected from previous transactions. The unidirectional temporal property and the fact that other transactions are exogenous from the perspective of a single buyer or seller are exploited to evaluate the effect of the sale price on time‐on‐the‐market, and the effect of time‐on‐the‐market on the sale price. Based on 29,471 transactions occurring in the suburban neighborhood of Montréal (1992‐2000), the results suggest that, everything else being equal, houses staying longer on the market provide negative information to the market, which results in a lower final sale price, while the final sale price is negatively related to time‐on‐the‐market, indicating that houses of better quality (better amenities) stay less time on the market.     

Auctioning Horizontally Differentiated Items

This paper analyzes competition between two sellers that offer horizontally differentiated items at competing auctions. Three possible outcomes can arise in equilibrium. For substantially differentiated items the monopoly reserve prices form an equilibrium, and the market is not entirely covered. When products become closer substitutes, a non-empty interval of types becomes valuable to both sellers. When transport costs are low, and virtual valuations are high, sellers compete for these bidders and set their reserve prices below the valuation of the marginal bidder. In equilibrium all types enjoy participation rents. For intermediate levels of transport costs it is not worth competing for runaway bidders. In this case, there is a continuum of equilibria. In each equilibrium sellers adjust their reserve prices so that the marginal bidder gets no rents.     

Collusion through Coordination of Announcements

A theory is developed to explain how sellers can effectively collude by coordinating on list prices (or surcharges), while leaving sellers to set their final prices. List prices are interpreted to be cheap talk announcements about cost information unknown to buyers. Buyers use those announcements to decide whom to invite to their procurement auction and the reserve price to set. By coordinating on a high list price to signal high cost, sellers produce supracompetitive prices by inducing buyers to be less aggressive, as reflected in a higher reserve price. We show that collusion can raise social welfare.     

On the incidence of commissions in auction markets

We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. Commissions are similar to taxes imposed on buyers and sellers, and standard economics suggests that both sellers and buyers are made worse off by the tax. However, we show that when the buyers' participation constraint binds and when sellers set optimal reservation prices, the level of commissions correlates to participation and reservation prices in such a way that participating buyers strictly gain from higher commissions.     

从产品供应链管理走向信息化篚价值网络管理：双案例研究

近年来产品供应链管理得到了广泛的关注,而产品供应链强调的是产品从供应商到分销商乃至最终客户的流程活动,基于此很多供应链信息技术的运用都是支持这一活动过程的,然而,随着经济全球化以及市场变化的加剧,使得企业越来越从产品供应链转向信息化为基础的价值网络。通过安吉物流以及苏宁电器的供应链信息化运作为研究对象,揭示了新时代价值网络管理的特征以及组织方式。指出价值网络管理的运行不仅是供需之间的产品经营和信息的协同,更是计划、知识、流程和投资行为的协同化,此外在组织方式上,则是以服务为中心、供需互动为手段、链式、辐射式、星座式创新为基础的综合管理体系。     

Brand-specific tastes for quality

This paper develops a model of nonlinear pricing with competition. The novel element is that each consumer's willingness to pay for quality is private information and is allowed to differ across brands. The consumer's preferences are represented by a multidimensional type containing the marginal value of quality for different products. Buyers with high willingness to pay for quality also display strong preferences for particular brands, and require higher discounts in order to switch away from their favorite product. Therefore, competition is fiercer for buyers with lower tastes for quality, and hence more elastic demands. This is in sharp contrast to earlier models in which competition is fiercer for higher-taste, more valuable buyers. In equilibrium, firms either compete intensively for the entire market (providing strictly positive rents to all consumers) or shut down the least profitable segment of the market. Quality levels are distorted downwards for all buyers, except for those with the highest type. The number of competing firms and the degree of correlation across brand preferences enhance the efficiency of the allocation.     

Quality infomediation in search markets

We examine the effects of informational intermediation by a third party ‘infomediary’ in a search model with heterogeneous seller qualities and asymmetric information. The infomediary earns revenue by selling a list of accredited sellers (a ‘guidebook’) to buyers and selling accreditations to sellers. We show that such information always improves welfare but can hurt informed buyers (as well as the uninformed) if it is not sufficiently informative about seller qualities. The model also provides a number of insights concerning the private and social incentives to create information, and the determinants and nature of demand for infomediation services by buyers and sellers.     

Hot and Cold Markets

This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock.     

Experimental Evidence on Product Adoption in the Presence of Network Externalities

The benefits accruing to a purchaser of a product due to the existing base of consumers of the same or compatible products are known as network externalities. This paper studies Katz and Shapiro's (1986) model of network externalities in an experimental setting. Two sellers choose prices for competing technologies sold to two groups of four buyers purchasing sequentially in two stages. The results are qualitatively consistent with Katz and Shapiro's equilibrium predictions. In certain sessions over three-quarters of first stage buyers purchase the more expensive technology anticipating that later arriving buyers will also buy this technology. In periods where a strong network has been established for a technology in the first stage, over 80 percent of second stage buyers buy that technology, even though in most cases it is priced higher. The data, however, differ from the point predictions of the model.     

Controlling Sellers Who Provide Advice: Regulation and Competition*

A monopoly seller advising buyers about which of two goods fits their needs may be tempted to recommend the higher margin good. For the seller to collect information about a buyer’s needs and provide truthful advice, the profits from selling both goods must be similar enough, i.e., within an implementability cone. The optimal regulation controls pricing distortions and information-collection incentives separately via price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study whether competition and the threat by buyers to switch sellers can substitute for regulation.     

Group identity in markets

We present a laboratory experiment that measures the effects of group identity—one's perceived membership in social groups—on market transactions in an oligopoly market with a few sellers and buyers. We artificially induce group identity using art preferences and college majors in different treatments, respectively. Subjects are randomly assigned into the roles of buyers and sellers and interact repeatedly. We find that the presence of groups influences both the selection of trading partners and the determination of prices. All else equal, sellers are more likely to make offers to ingroup buyers, and the buyers are more likely to accept offers from ingroup sellers. There are considerable intergroup price differentials with the outgroup sellers charging a lower price than the ingroup sellers.     

Ethnicity in housing markets: Buyers,sellers and agents

This paper examines how ethnicity related to cultural differences arising from ethnic background affects housing market transactions in the Atlanta metro area. Using both the US Census and Wikipedia approaches to infer ethnicity from individuals' names, we find that the interplay of buyer, seller, and agent ethnicity composition affects interaction in the housing market. Sellers working with listing agents in the same ethnic group set higher listing prices and enjoy higher selling prices and quicker sales. Agents working with same ethnicity buyers yield higher prices and liquidity. Even though sellers only communicate with buyers through their agents, houses sold by sellers to buyers of same ethnicity have higher prices and sell faster. And while the ethnic mix of agents and their clients matter, the ethnic mix of agents in the transaction does not.     

INFORMATION REVELATION AND BUYER PROFITS IN REPEATED PROCUREMENT COMPETITION*

I investigate how procurement costs are affected by the information that buyers reveal about sellers' behavior, in a setting with two sequentially offered contracts for which a seller's privately known costs are identical. Expected prices are lowest when sellers learn nothing until all contracts are allocated, are higher when they learn all sellers' price offers as contracts are allocated, and typically are even higher when they learn only the winner's identity, or the winner's identity and price offer. The results suggest that buyers engaged in repeated procurement may pay less by revealing minimal or extensive information, rather than an intermediate amount.     

The Housing Market and Real Estate Brokers

The major development in this paper concerns the failure, in earlier studies, to consider interaction between alternative methods of arranging sales in the housing market. A seller may market a house by direct negotiations with buyers, without the intermediation of real estate brokers, or by listing the house with a broker. A rational seller would choose the option which offers the higher expected return on the house. In a sequence of models we argue that the seller's option of a method of sale induces competitive pressure in the choice of the commission rate by the broker. We also consider the split rate in a multiple listing system, ease of entry of brokers and the cartel hypothesis as applied to brokers. We conclude that the competitive pressure of direct negotiations between sellers and buyers, relative free entry of brokers and the inappropri-ateness of the cartel hypothesis cast serious doubt about a general consensus of opinion that the brokerage system is characterized by price fixing, excessive commissions and excessive marketing costs.