The Optimal Sequence of Prices and Auctions
32 Pages Posted: 27 Feb 2014 Last revised: 26 Aug 2017
Date Written: August 25, 2017
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 than a posted price. 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: buy-it-now, posted price, reserve price auction
JEL Classification: D44, D47
Suggested Citation: Suggested Citation