41 Pages Posted: 27 Feb 2014 Last revised: 1 Sep 2015
Date Written: September 1, 2015
A seller chooses to post a price or to run a reserve price auction each period to sell a good before a deadline. Buyers with independent private values arrive over time. Assume that an auction costs more to the seller and/or to the buyers than a posted price does. For a wide range of auction costs, the profit-maximizing mechanism sequence is to post prices first and then to run auctions. The optimality of the prices-then-auctions mechanism sequence justifies the use of the buy-it-now selling format on eBay.
Keywords: dynamic mechanism design, posted price, reserve price auction, buy-it-now
JEL Classification: D44, D47
Suggested Citation: Suggested Citation