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Game Theoretical Analysis Of Buy-It-Now Price Auctions

Author

Listed:
  • HAI YU

    (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100080, China;
    Graduate School of the Chinese Academy of Sciences, Beijing 100049, China;
    Baidu Network, Beijing 100080, China)

  • CHUANGYIN DANG

    (Department of Manufacturing Engineering and Engineering Management, City University of Hong Kong, Hong Kong, China)

  • SHOU-YANG WANG

    (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100080, China;
    Graduate School of Systems and Information Engineering, Tsukuba University, Tsukuba, Ibaraki 305-8573, Japan)

Abstract

We study two kinds of buy-it-now options, temporary and permanent, under a theoretical model of Stackelberg game. In this two-stage game, the bidders, as the followers, use a two-threshold strategy to determine whether to bid or directly buy the item at the posted price, given an auction configuration featured by the seller in the first stage and other common knowledge. Under the uniform distribution assumption for the bidders' valuation, we derive the optimal necessary conditions of the starting price and the buy-it-now price for maximizing the seller's expected revenue. Then, we use two numerical experiments to find some interesting insights, which include that under identical bidders' participation costs, the temporary buy-it-now option can acquire a higher expected revenue for the seller than the permanent option, and a buy-it-now price auction always nontrivially dominates a regular auction in terms of the achieved expected revenue, no matter whether the seller or the bidders are risk-averse.

Suggested Citation

  • Hai Yu & Chuangyin Dang & Shou-Yang Wang, 2006. "Game Theoretical Analysis Of Buy-It-Now Price Auctions," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 557-581.
    • Handle: RePEc:wsi:ijitdm:v:05:y:2006:i:03:n:s0219622006002131
    DOI: 10.1142/S0219622006002131
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    References listed on IDEAS

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    1. Kirkegaard, René & Overgaard, Per Baltzer, "undated". "Buy-Out Prices in Online Auctions: Multi-Unit Demand," Economics Working Papers 2003-4, Department of Economics and Business Economics, Aarhus University.
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    Cited by:

    1. Ya Gao & Guangquan Zhang & Jie Lu & Hui-Ming Wee, 2011. "Particle swarm optimization for bi-level pricing problems in supply chains," Journal of Global Optimization, Springer, vol. 51(2), pages 245-254, October.

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