Selling Mechanism Design for Peer-to-Peer Lending and Related Markets: the Multi-unit Uniform-price Open Auction vs. Fixed Price

Journal of Marketing Research

Posted: 8 Feb 2017 Last revised: 24 Jun 2022

Date Written: December 23, 2016

Abstract

In the past two decades, there has been a decline in the use of uniform-price auctions in favor of fixed prices in markets of peer-to-peer (p2p) lending, equity crowd-funding, and IPOs. This article aims to analytically study why this trend might be occurring. Our analysis reveals that, relative to a fixed price, a uniform-price auction leads to more herding and strategic delay of bid submission and, consequently, a smaller transaction completion probability and lower expected revenue. These predictions are consistent with the empirical regularities that we observe for the bidding behavior and funding outcomes on Prosper.com, one of the leading peer-to-peer online lending platforms, and those documented in the literature for markets of equity crowd-funding and IPOs.

Keywords: Internet Auctions, Market Design, Multiunit Uniform-Price Open Auctions, Posted Price, Transaction Efficiency, Herding, Late Bidding, Peer-To-Peer Lending

JEL Classification: D44

Suggested Citation

Huang, Guofang, Selling Mechanism Design for Peer-to-Peer Lending and Related Markets: the Multi-unit Uniform-price Open Auction vs. Fixed Price (December 23, 2016). Journal of Marketing Research, Available at SSRN: https://ssrn.com/abstract=2913132 or http://dx.doi.org/10.2139/ssrn.2913132

Guofang Huang (Contact Author)

Purdue University ( email )

West Lafayette, IN 47906
United States

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