Equivalence of Auctions and Posted Prices

Kultti, Klaus

doi:10.1006/game.1998.0658

Cited by 77 publications

(57 citation statements)

References 3 publications

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“…Together with the previous proposition this clarifies why under urn-ball meetings competition in fixed prices leads to the same surplus as in the case when sellers do not post anything but simply run second price auctions without reserve (Kultti, 1999): If sellers could compete in auctions, they would indeed choose to set a zero reserve under urn-ball meetings. Different meeting technologies would lead to a different reserve price, though.…”

Section: Discussionsupporting

confidence: 63%

Sorting versus screening: Search frictions and competing mechanisms

Eeckhout

Kircher

2010

Journal of Economic Theory

116

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In a market where sellers compete by posting trading mechanisms, we allow for a general search technology and show that its features crucially affect the equilibrium mechanism. Price posting prevails when meetings are rival, i.e., when a meeting by one buyer reduces another buyer's meeting probability. Under price posting buyers reveal their type by sorting ex ante. Only if the meeting technology is sufficiently non-rival, price posting is not an equilibrium. Multiple buyer types then visit the same sellers who screen ex post through auctions.

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Section: Discussionsupporting

confidence: 63%

Sorting versus screening: Search frictions and competing mechanisms

Eeckhout

Kircher

2010

Journal of Economic Theory

116

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“…Several authors examined the relative performance of posted-prices compared to auctions (see (Wang, 1993;Kultti, 1999) and the references therein) and compared to bargaining (see (Wang, 1995) and the references therein) and described conditions under which the posted-price mechanism may outperform, or at least perform as well, as either auctions or bargaining.…”

Section: Comparison To the Posted Price Mechanismmentioning

confidence: 99%

The effectiveness of English auctions

Neeman

2003

Games and Economic Behavior

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We study the performance of the English auction under different assumptions about the seller's degree of "Bayesian sophistication." We define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation (total surplus). We identify tight lower bounds on the effectiveness of the English auction for general private-values environments, and for private-values environments where bidders' valuations are non-negatively correlated. For example, when the seller faces 12 bidders who the seller believes have non-negatively correlated valuations whose expectations are at least as high as 60% of the maximal possible valuation, an English auction with no reserve price generates an expected price that is more than 80% of the value of the object to the bidder with the highest valuation.  2003 Elsevier Science (USA). All rights reserved.JEL classification: D44; D82

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“…Kultti [6], for instance, presents a model where sellers compete for risk neutral buyers via fixed pricing or auctions and demonstrates that in equilibrium both mechanisms yield the same expected payoff. Eeckhout and Kircher [3] show that payoff equivalence is not specific to price posting and auctions, rather it holds for a continuum of trading protocols all of which may be offered in equilibrium.…”

Section: Introductionmentioning

confidence: 99%

“…The concave curves consist of combinations of p 1 and p 2 satisfying the indifference constraint U (p, v) = U , whereas the linear lines are the isoprofit curves. 6 Observe that the optimal set of prices lie on the 45 0 line which means that setting p 1 = p 2 yields the maximum profits.…”

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confidence: 99%

Trading mechanism selection with directed search when buyers are risk averse

Selcuk

2012

Economics Letters

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+44 (0)29 2087 0831A : We endogenize the trading mechanism selection in a model of directed search with risk averse buyers and show that the unique symmetric equilibrium entails all sellers using fixed price trading. Mechanisms that prescribe the sale price as a function of the realized demand (auctions, bargaining, discount pricing, etc.) expose buyers to the "price risk", the uncertainty of not knowing how much to pay in advance. Fixed price trading eliminates the price risk, which is why risk averse customers accept paying more to shop at such stores.

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Equivalence of Auctions and Posted Prices

Cited by 77 publications

References 3 publications

Sorting versus screening: Search frictions and competing mechanisms

Sorting versus screening: Search frictions and competing mechanisms

The effectiveness of English auctions

Trading mechanism selection with directed search when buyers are risk averse

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