Auction Versus Posted Price Mechanisms in Online Sales: The Roles of Impatience and Dissuasion

Chowdhury, S.M., Datta, D., & Dhar, S. (2019). Auction versus Posted Price Mechanisms in Online Sales: The Roles of Impatience and Dissuasion. Studies in Microeconomics, 7(1), 75-88.

18 Pages Posted: 30 Oct 2020

See all articles by Subhasish M. Chowdhury

Subhasish M. Chowdhury

University of Bath - Department of Economics

Date Written: February 10, 2019

Abstract

If all potential buyers participate in a first-price auction, then (theoretically) the auction price weakly exceeds the price placed by the seller under a posted-price mechanism. However, it is documented that in the online sellers prefer posted-price mechanism to auction. We aim to explain this empirical contradiction in terms of partial participation of the buyers in auction, prompted by impatience and dissuasion. Auction in internet often requires waiting, and hence many impatient participants may not join the auction process. Furthermore, a previous experience of failure in auction may also prompt buyers’ non-participation. We show, theoretically, that in the case of partial participation the price in auction may be lower; and posted-price turns out to be payoff dominant for both the buyers and the sellers. We then run a laboratory experiment and verify the presence of impatience (through waiting cost) and dissuasion factor (through previous failure) among the subjects.

Keywords: Auction, Impatience, Dissuasion, Experiment, Posted Price

JEL Classification: C91, D44, D91

Suggested Citation

Chowdhury, Subhasish M., Auction Versus Posted Price Mechanisms in Online Sales: The Roles of Impatience and Dissuasion (February 10, 2019). Chowdhury, S.M., Datta, D., & Dhar, S. (2019). Auction versus Posted Price Mechanisms in Online Sales: The Roles of Impatience and Dissuasion. Studies in Microeconomics, 7(1), 75-88. , Available at SSRN: https://ssrn.com/abstract=3690611 or http://dx.doi.org/10.2139/ssrn.3690611

Subhasish M. Chowdhury (Contact Author)

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://https://sites.google.com/site/subhasishmc/

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