Online Auction Demand

Marketing Science, Vol. 27, No. 5, pp. 861-885, 2008

59 Pages Posted: 17 Dec 2006 Last revised: 9 Feb 2009

See all articles by Song Yao

Song Yao

Washington University in St. Louis - John M. Olin Business School

Carl F. Mela

Duke University - Fuqua School of Business

Date Written: January 1, 2008

Abstract

With $40BB in annual gross merchandise volume, electronic auctions comprise a substantial and growing sector of the retail economy. Using unique data on Celtic coins, we estimate a structural model of buyer and seller behavior via MCMC with data augmentation. Results indicate that buyer valuations are affected by item, seller, and auction characteristics; buyer costs are impacted by bidding behavior; and seller costs are affected by item characteristics and the number of listings.

The model enables us to compute fee elasticities even though there exists no variation in fees in our data. We find commission elasticities exceed per-item fee elasticities because they target high value sellers and enhance their listing likelihood. By targeting commission reductions to high value sellers auction house revenues can be increased by 3.9%. Computing customer value, we find attrition of the largest seller would decrease fees paid to the auction house by $97. Given the seller paid $127 in fees, competitive effects offset only 24% of the fees paid by the seller. In contrast, competition offsets 81% of the buyer attrition effect. In both events, the auction house would overvalue its customers by neglecting competitive effects.

Keywords: Auctions, Structural Models, Two Sided Markets, Empirical IO, Bayesian Statistics

JEL Classification: D44, C15, M31

Suggested Citation

Yao, Song and Mela, Carl F., Online Auction Demand (January 1, 2008). Marketing Science, Vol. 27, No. 5, pp. 861-885, 2008. Available at SSRN: https://ssrn.com/abstract=952020

Song Yao

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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

Carl F. Mela (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7767 (Phone)

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