A Dynamic Model of Auctions with Buy‐It‐Now: Theory and Evidence |
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| Authors: | Jong‐Rong Chen Kong‐Pin Chen Chien‐Fu Chou Ching‐I Huang |
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| Institution: | 1. Graduate Institute of Industrial Economics, National Central University, , Taoyuan County, 32001 Taiwan;2. Research Center of Humanities and Social Sciences, Academia Sinica, , Taipei City, 11529 Taiwan;3. Department of Economics, National Taiwan University, , Taipei City, 10055 Taiwan |
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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 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 Taiwan's Yahoo! auctions. |
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