Publication

Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions

Laura Elisa Celis
2014
Journal Articles

Abstract

Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high-valuation bidders to buy-it-now. We analyze equilibrium behavior and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.

Official source

https://infoscience.epfl.ch/entities/publication/00cb505f-6968-44be-b77c-24eea57e6806

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Laura Elisa Celis
2014
Journal Articles

Abstract

Official source

https://infoscience.epfl.ch/entities/publication/00cb505f-6968-44be-b77c-24eea57e6806

About this result

Related concepts (22)

Auction theory

Auction theory is an applied branch of economics which deals with how bidders act in auction markets and researches how the features of auction markets incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The conference of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues which can lead to market failure.

Auction

An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory. The open ascending price auction is arguably the most common form of auction and has been used throughout history.

Surplus value

In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in Ricardian socialism, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of surplus labor and surplus product.

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