Auctions vs. fixed pricing: competing for budget constrained buyers

Selcuk, Cemil ORCID: https://orcid.org/0000-0002-2267-604X 2017. Auctions vs. fixed pricing: competing for budget constrained buyers. Games and Economic Behavior 103 , pp. 262-285. 10.1016/j.geb.2016.01.003

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Abstract

We investigate price mechanism selection in a setting where sellers compete for budget constrained buyers by adopting either fixed pricing or auctions (first or second price). We show that first and second price auctions are payoff equivalent when some bidders are financially constrained, so sellers are indifferent to adopt either format. We characterize possible equilibria and show that if the budget is high, then sellers compete via fixed pricing, if it is low then they compete via auctions, and if it is moderate then they mix, so both mechanisms coexist. The budget constraint becomes less binding if sellers use entry fees. Interestingly an improvement of the budget---e.g. letting customers pay in installments---may lead to fewer trades and a loss of efficiency.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Additional Information:	The paper has been selected for publication in the John Nash Memorial Special Issue (publication expected in the Summer of 2016). The paper is available online as of Jan 22, 2016. Pdf uploaded in accordance with publisher's policy at http://www.sherpa.ac.uk/romeo/issn/0899-8256/ (accessed 01/02/2016)
Publisher:	Elsevier
ISSN:	0899-8256
Date of First Compliant Deposit:	30 March 2016
Date of Acceptance:	22 January 2016
Last Modified:	24 Nov 2024 07:45
URI:	https://orca.cardiff.ac.uk/id/eprint/85953

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