Reserve Prices in Online Auctions:Theory and Evidence

35 Pages Posted: 23 Feb 2016

See all articles by Kong-Pin Chen

Kong-Pin Chen

Academia Sinica - Research Center for Humanities and Social Sciences; National Taiwan University - Department of Economics

Hung-pin Lai

National Chung Cheng University - Department of Economics

Chang‐Ching Lin

National Cheng Kung University

Ya-Ting Yu

Graduate Institute of Industrial Economics

Date Written: June 11, 2014

Abstract

The paper proposes a simple model of auctions with an impatient seller who chooses the reserve price and the buy-it-now (BIN) price to maximize revenue. The three main sales channels in the online auction (the pure auction, the BIN auction, and the fixed-price sale) are each shown to be an optimal solution for the sellers with certain degrees of time-preference. The theory also predicts that the optimal posted price for the fixed-price listing is greater than the optimal reserve price for the BIN auction, which in turn is greater than that for the pure auction. This prediction is confirmed by data from eBay's auction of iPods. Using the seller's inventory as a proxy for his degree of time-preference, the data also confirm the theoretical prediction that there is an inverse relationship between the optimal reserve price and the seller's time-discount factor.

Keywords: reserve price, online auction, buy-it-now, fixed price, auction, iPod, eBay, time preference

JEL Classification: D44, M31, D82, L11, L12

Suggested Citation

Chen, Kong-Pin and Lai, Hung-pin and Lin, Chang-Ching and Yu, Ya-Ting, Reserve Prices in Online Auctions:Theory and Evidence (June 11, 2014). Available at SSRN: https://ssrn.com/abstract=2736029 or http://dx.doi.org/10.2139/ssrn.2736029

Kong-Pin Chen (Contact Author)

Academia Sinica - Research Center for Humanities and Social Sciences ( email )

RCHSS
Academia Sinica
Nankang, Taipei, 11529
Taiwan
886 2 2789 8160 (Phone)
886 2 2785 4160 (Fax)

HOME PAGE: http://idv.sinica.edu.tw/kongpin/

National Taiwan University - Department of Economics

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Hung-pin Lai

National Chung Cheng University - Department of Economics ( email )

Ming-Hsiung, Chia-Yi, 621
Taiwan
886-5-2720411 ext 34110 (Phone)
886-5-2720816 (Fax)

HOME PAGE: http://bach.ccu.edu.tw/Site/ecdhpl-ccu_edu_tw_xoxpmq/Intro/

Chang-Ching Lin

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

Ya-Ting Yu

Graduate Institute of Industrial Economics ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

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