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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

Internet and the Web; 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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    The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry

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More from the Authors
  • Self-Preferencing at Amazon: Evidence from Search Rankings By: Chiara Farronato, Andrey Fradkin and Alexander MacKay
  • Consumer Demand with Social Influences: Evidence from an E-Commerce Platform By: El Hadi Caoui, Chiara Farronato, John J. Horton and Robert Schultz
  • The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry By: Chiara Farronato and Andrey Fradkin
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