Internet Auctions with Many Traders

45 Pages Posted: 19 May 2003

See all articles by Michael Peters

Michael Peters

University of Toronto - Department of Economics

Sergei Severinov

Duke University, Fuqua School of Business-Economics Group

Date Written: December 20, 2002

Abstract

We study a multi-unit auction environment similar to eBay. Sellers, each with a single unit of a homogenous good, set reserve prices at their own independent second-price auctions. Each buyer has a private value for the good and wishes to acquire a single unit. Buyers can bid as often as they like and move between the sellers' auctions in a dynamic environment. We characterize a perfect Bayesian equilibrium for this decentralized trading mechanism in which, conditional on reserve prices, an efficient set of trades occurs at a uniform trading price. When the number of buyers and sellers is large but finite, the sellers set reserve prices equal to their true costs, so ex-post efficiency is achieved. This result holds under a very mild distributional assumption. The buyers' strategies in this equilibrium are very simple and do not depend on their beliefs about the other buyers' valuations, or the number of buyers and sellers. They bid almost myopically. Their only 'sophisticated' choice is where to bid when they are indifferent between several sellers.

Keywords: Decentralization, Trading Mechanisms, Auctions, Internet

JEL Classification: C73, C78, D44

Suggested Citation

Peters, Michael and Severinov, Sergei, Internet Auctions with Many Traders (December 20, 2002). Available at SSRN: https://ssrn.com/abstract=376362 or http://dx.doi.org/10.2139/ssrn.376362

Michael Peters

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
(416) 978-5283 (Phone)
(416) 978-6713 (Fax)

Sergei Severinov (Contact Author)

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States
919-660-7926 (Phone)
919-660-7971 (Fax)

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