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  • February 2018
  • Article
  • Journal of Political Economy

Auctions versus Posted Prices in Online Markets

By: Liran Einav, Chiara Farronato, Jonathan Levin and Neel Sundaresan
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Abstract

Auctions were very popular in the early days of internet commerce, but today online sellers mostly use posted prices. We model the choice between auctions and posted prices as a trade-off between competitive price discovery and convenience. Evidence from eBay fits the theory: auctions are favored by less experienced sellers and for idiosyncratic products, and auction listings sell at a discount but with higher probability relative to comparable posted price listings. We then show that the decline in auctions was not driven by changes in the type of sellers and items. Instead, seller incentives changed. We estimate the demand facing individual sellers at different points in time, and document falling sale probabilities and a fall in the relative demand for auctions. Both favor posted prices; our estimates suggest the latter is more important for explaining the shift away from auctions. We provide supporting evidence from a survey of eBay sellers, and discuss why sellers might use a mix of auctions and posted prices in order to price discriminate.

Keywords

Online Technology; Auctions; Price

Citation

Einav, Liran, Chiara Farronato, Jonathan Levin, and Neel Sundaresan. "Auctions versus Posted Prices in Online Markets." Journal of Political Economy 126, no. 1 (February 2018): 178–215.
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About The Author

Chiara Farronato

Technology and Operations Management
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  • Getting Started in R Cloud Studio By: Chiara Farronato and Caleb Kwon
  • T-tests: Theory and Practice By: Michael Parzen, Natalie Epstein, Chiara Farronato and Michael Toffel
  • Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger By: Chiara Farronato, Jessica Fong and Andrey Fradkin
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