Information Unraveling Revisited: Disclosure of Horizontal Attributes

This paper analyzes in a spatial framework how much information a seller discloses about the variety he sells when he faces a buyer with a privately known taste for variety. I identify an equilibrium in which, for each possible variety, the seller's optimal strategy consists of either fully disclosing the variety or disclosing how far it is from the buyer's expected taste. The set of varieties the seller fully discloses monotonically expands as the buyer's taste for variety becomes stronger. I show that this is the unique undefeated equilibrium. From a policy perspective, mandating full disclosure is socially harmful.     

Secret reserve prices in first-price auctions

This article offers a theoretical explanation for the use of secret reserve prices in auctions. I study first-price auctions with and without secret reserve price in an independent private values environment with risk-neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using a secret reserve price to phantom bidding and non-commitment to sell.     

Private labels in marketplaces

Regulators are concerned that by introducing their own private labels, dominant online marketplace operators distort competition in their own favor. This paper addresses this concern by studying how online marketplaces differ from classic retailers with a wholesale arrangement. In online marketplaces individual sellers set their own consumer prices, while the marketplace operator collects fees from their sales. I show that when introducing a private label, the marketplace operator does not have an incentive to distort competition and foreclose the outside seller. On the contrary, when introducing a private label, there is an incentive to decrease the fee charged to the outside seller and to vertically differentiate its own product in order to protect the seller’s channel. However, relative to the wholesale model of classic retailers, online marketplace operators offer a lower quality with higher consumer prices, leading to less improvement in consumer surplus and potentially less harm to the outside seller.     

Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design*

I study a seller's pricing problem where consumers perform costly product research about value before purchase. They buy the product when sufficiently optimistic about value and cease research when sufficiently pessimistic. I find that the seller encourages product research when prior belief about value is high, even though he could sell immediately for a high price. The prior affects both expected value and how additional information changes consumers' beliefs. I show that an increase in research cost affects equilibrium price nonmonotonically. Finally, when the seller chooses price and product value dispersion, the optimal level of dispersion need not be extremal.     

FINANCIAL VALUE OF REPUTATION: EVIDENCE FROM THE eBAY AUCTIONS OF GMAIL INVITATIONS*

In this article, I utilize a unique collection of auctions on eBay to study the influence of seller reputation on auction outcomes. In a market of homogeneous goods with non‐enforceable contracts, I find that sellers who improve their reputation by one quintile from the lowest, experience a 6.2% higher probability of sale and a 6.1% hike in valuation after adjusting for truncation bias from failed auctions and explicitly controlling for unobservable seller heterogeneity. This study also shows that in addition to a dimension of reputation universal across different product markets, the product‐specific dimension of reputation significantly affects the auction outcomes.     

A RENT EXTRACTION THEORY OF RIGHT OF FIRST REFUSAL*

When a seller encumbers a property with a right of first refusal, whenever a third party offers to purchase the property, the right‐holder can acquire the property by simply matching the third party's offer. I model the right as a modified auction where the right‐holder gets to observe the third party's bid before making his own. I show that, compared to the standard auctions, the right increases the joint profit of the seller and the right‐holder by reducing the third party's profit. This result is independent of whether the third party is aware of the right's existence and whether the right creates a welfare loss.     

Price Discrimination with Demarketing

We study how demarketing interacts with pricing decisions to explain why and when it can be employed as the seller's optimal strategy. In our model, a monopolistic seller offers different price‐quality bundles of the product. A consumer's preference is private information. With demarketing, consumers must make a costly effort to purchase and/or utilize the product, whereas with marketing, the seller instead makes the effort so that the consumer's purchasing decision is independent of the cost of effort. Our result suggests that, for small or large effort costs, it is optimal for the seller to engage in marketing. For intermediate effort costs, however, demarketing can be optimal. With demarketing, the seller induces only the consumers with high valuation to make transaction effort. By doing so, the seller can price discriminate more effectively, thus extracting more surplus. We extend our analysis to the case where the seller can offer special deals through exclusive sales channels along with demarketing. Then, demarketing can be optimal even for large costs of effort.     

Waterfall Versus Sprinkler Product Launch Strategy: Influencing the Herd

A seller decides the price and sequence in which a product of unknown value is introduced to consumers. Consumers inspect the product before consumption and observe past prices and sales. Consumption at a high price is informative for later consumers as it indicates that the product is likely to be of high value. I show that on an average prices decrease over time. However, expected revenue on an average rises over time. For a high enough discount factor, I find that for extreme beliefs the firm introduces the product to all consumers but for intermediate values the product is introduced only to one consumer.     

Seller curation in platforms

This article explores why market platforms do not expel low-quality sellers when screening costs are minimal. I model a platform market with consumer search. The presence of low-quality sellers reduces search intensity, softening competition between sellers and increasing the equilibrium market price. The platform admits some low-quality sellers if competition between sellers is intense. Recommending a high-quality seller and this form of search obfuscation are complementary strategies. The low-quality sellers enable the recommended seller to attract many consumers at a high price and the effect of the recommendation is strengthened as low-quality sellers become more adept at imitating high-quality sellers.     

COLLUSION IN THE PRESENCE OF EXTERNALITIES*

I examine collusive bidder behavior in auctions with negative externalities and show that the optimal bidding scheme exhibits only partial rigidity. Because of externalities, a cartel not only has incentive to maximize gains from trade but also to minimize the probability of sales. I identify the tension between the two incentives and show that the more rigid the bidding scheme, the higher the possibility of sales. As the extent of externalities increases, the cartel finds it more important to keep a low probability of sales than to minimize payment to the seller. This results in a partially‐rigid optimal collusive bidding scheme.     

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.     

Effects of seller’s information disclosure in equity auctions requiring post-auction investment

We consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers. After the auction, the winning bidder decides whether to make follow-up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome. Before the auction, the seller holds private information about the possible returns on that investment and must decide whether to disclose it. Larger equity payments undermine incentives to invest, reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder. Thus, information disclosure makes bids less aggressive in expectation. Expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad.     

The Strategic Role of Listing Price in Marketing Real Estate: Theory and Evidence

The seller of a real estate property and his broker have two primary goals: to sell the properly for as high a price as possible and as quickly as possible. While these are separate objectives, they are closely related through the listing price of the seller. The listing price affects how long it takes to find a buyer (i.e., Time On the Market = TOM), and TOM influences the price that results from the bargaining between the seller and the buyer. This leaves the seller and his agent with an important question: What is the optimal price to be asked for the property? The objective of this research is to provide a theoretical and empirical analysis of the impact of listing price on TOM and the transaction price.     

PRICE DISPERSION AND COMPETITION WITH DIFFERENTIATED SELLERS*

I measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment. Significant price dispersion exists even after controlling for differences in station characteristics, and price differences between sellers change frequently. The extent of price dispersion is related to the density of local competition, but this relationship varies significantly depending on the type of seller and the composition of its competitors. These findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature.     

How can business buyers attract sellers' resources?: Empirical evidence for preferred customer treatment from suppliers

This paper describes a study that investigates what makes a buyer attractive to a seller in a business-to-business buyer–seller relationship and encourages the seller to commit to and invest resources preferentially in the relationship. The study helps answer the question, “What is it that the buyer needs to do to create this attractiveness?” The perspective is somewhat unusual in the marketing literature for two reasons. Firstly, because it investigates how the supplier perspective of customer financial attractiveness affects the attitudes and actions of the supplier towards the buyer, rather than taking the buyer's perspective across the relationship. Secondly, the study has relationship attractiveness in terms of financial performance as an antecedent of its relationship constructs, whereas most relationship studies investigate performance as an outcome. The paper develops a model that proposes the seller's perception of customer financial attractiveness, seller satisfaction, and seller commitment as drivers of the seller's preferred customer treatment by allocation of resources to the relationship. The bases for the study's model are the resource-based view of the firm, the industrial marketing and purchasing (IMP) models, and related resource-focused theoretical streams. The study finds support for the model in the analysis of survey data.     

A New Perspective on Entry in Horizontal Merger Analysis

I analyze horizontal mergers in procurement settings in which sellers incur costs to participate. Considering existing sellers’ contest-level entry differs from antitrust authorities’ typical emphasis on new sellers’ market-level entry to counteract a merger’s anticompetitive harm. I show that profitable mergers can increase consumer and total surplus by inducing more and stronger contest-level entry by the merged seller, which echoes common claims from merging parties that their merger is beneficial because it creates a stronger competitor. This finding suggests caution by antitrust authorities: when contest-level entry costs matter, standard models that ignore those costs prescribe blocking procompetitive mergers.

     

Scamming and the reputation of drug dealers on Darknet Markets

In this paper I investigate the role of e-reputation mechanisms on illegal platforms that specialize in drug sales. I ask whether online reputation systems can limit the risk of scamming (i.e. fraud) by dishonest sellers, and thus prevent Akerlof-like market destruction. I do so by analyzing all published offers on the second-largest platform operating on March 18th 2017 (Hansa). Three types of drugs show relatively low scamming risks, with the average probability that a random seller effectively send the ordered good of over 83%. The recent shutdowns of the two leading platforms are likely to increase this probability by 2.7 to 9.7%. Endogeneity may either lead us to overestimate the effect of e-reputation mechanisms (e.g., unobserved heterogeneity in sellers) or underestimate it (e.g., better-functioning markets may attract more scammers).     

Auctions with contingent payments — An overview

I survey a literature on auctions with contingent payments, that is auctions in which payments are allowed to depend on an ex-post verifiable variable, such as revenues in oil lease auctions. Based on DeMarzo et al. (2005), I describe a partial ranking of auction revenues for auctions that differ in terms of contract forms, pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup. I discuss models that incorporate adverse selection, moral hazard, competition between auctioneers, common values and the sale of multiple units.     

How buyer–seller relationship orientation affects adaptation of sales processes to the buying process

Adaptation in sales is common in business relationships. The purpose of this study is to understand how the buyer–seller relationship affects sellers' sales process adaptation to customers' buying processes. The results reveal how the buyer–seller relationship orientation affects sales process adaptation and its effects. The main sources of information in this qualitative inquiry are in-depth, semi-structured interviews with key informants representing a buyer–seller relationship. This study helps to shed light on how the buyer–seller relationship orientation affects sales process adaptation. The findings reveal that both the buyer and the seller have an impact on sales process adaptation. Extant research has recognized adaptation as a central aspect in relationships, while largely neglecting sales process adaptation. Thus, this study focuses on the effects of buyer–seller relationship orientation on sales process adaptation.     

Using experiments to compare the predictive power of models of multilateral negotiations

We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of models of the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, and we categorize the models by whether introducing a second seller to bilateral negotiations always, never, or sometimes increases the buyer's payoff. Our experiment features two scenarios within which the three categories of models have observationally distinct predictions: a differentiated scenario with one high-surplus seller and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios the buyer tends to trade with a high-surplus seller at terms indistinguishable from those in bilateral negotiations with a high-surplus seller, meaning that introducing a competing seller does not substantially affect the observed terms of trade. Our findings match the predictions from models in the never-matters category, supporting their use when modeling multilateral negotiations.