Auctions versus Posted Prices in Online Markets

Media and Content, Internet, Networks, the Internet, and Cloud Computing and Competition Policy and Antitrust

Article Snapshot

Author(s)

Liran Einav, Chiara Farronato, Jonathan Levin and Neel Sundaresan

Source

Journal of Political Economy, Vol. 126, No. 1, pp. 178-215, 2018

Summary

When eBay first became popular, most sellers listed goods for sale in an auction format. Over time, posted prices began to predominate. Sellers were influenced by two factors, growing competition between sellers, and buyers’ preference for the convenience of posted prices.

Policy Relevance

Buyer demand for posted prices is the main factor encouraging the shift away from auctions.

Main Points

  • Economists have sought to discover whether sellers are best off if they post a price, run an auction, or try to haggle with buyers.
     
    • Posted prices are used often for standardized good.
       
    • Auctions have been used mainly for art, wine, and rarely traded goods.
       
    • Auctions reveal information about buyer’s preferences but take time and require communication with multiple buyers.
       
  • Some predicted that the advent of the Internet would mean that sellers would abandon posted prices; as of 2001, eBay had become an important platform, and auctions were the dominant form of sale.
     
  • As of 2018, auctions have fallen sharply in popularity on eBay and other platforms, and posted prices dominate; this paper uses data from eBay collected between 2003 and 2009 to explore why sellers choose posted prices instead of auctions.
     
  • Auctions are mainly used by small and less experienced sellers, for used goods, and for unusual goods; goods listed for auction are more likely to sell, but at a lower price.
     
  • The data shows that there has been no significant change in the composition of eBay sellers or the products they sell.
     
  • Consumers prefer the convenience of being able to purchase a product immediately; another factor is increased competition among sellers and better search engines, which make it possible to discover the appropriate price for an item without an auction.
     
  • Consumer demand for convenience has played the largest role in reducing demand for auctions, especially in categories such as clothing, jewelry, and collectibles; in categories were products are less differentiated, such as electronics and computers, competition between sellers plays a greater role in explaining why posted prices are preferred.
     

 

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