Buy-it-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions

42 Pages Posted: 22 Dec 2016 Last revised: 18 Oct 2024

See all articles by Elisa Celis

Elisa Celis

University of Washington

Gregory Lewis

Microsoft Corporation - Microsoft Research New England

Markus M. Mobius

Microsoft Corporation - Microsoft Research New England; University of Michigan at Ann Arbor - School of Information; National Bureau of Economic Research (NBER)

Hamid Nazerzadeh

University of Southern California - Marshall School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 2012

Abstract

Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.

Suggested Citation

Celis, Elisa and Lewis, Gregory and Mobius, Markus M. and Mobius, Markus M. and Nazerzadeh, Hamid, Buy-it-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions (December 2012). NBER Working Paper No. w18590, Available at SSRN: https://ssrn.com/abstract=2888735

Elisa Celis (Contact Author)

University of Washington ( email )

Seattle, WA 98195
United States

Gregory Lewis

Microsoft Corporation - Microsoft Research New England ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

Markus M. Mobius

University of Michigan at Ann Arbor - School of Information ( email )

304 West Hall
550 East University
Ann Arbor, MI 48109-1092
United States

HOME PAGE: http://www.markusmobius.org

Microsoft Corporation - Microsoft Research New England ( email )

One Memorial Drive, 12th Floor
Office 12062
Cambridge, MA 02142
United States

HOME PAGE: http://www.markusmobius.org

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.markusmobius.org

Hamid Nazerzadeh

University of Southern California - Marshall School of Business ( email )

Bridge Memorial Hall
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~nazerzad/

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