The dynamics of customer relationship are being reshaped by price-setting processes such as online auctions. This paper analyzes price setting process in business-to-consumer (B2C) online auctions. Typically, these auctions involve multiple identical units and utilize a variant of the traditional English-auction mechanism. We describe an online laboratory experiment that compares the efficiency of such a mechanism with a multi-item version of Vickrey's [Journal of Finance 41 (1961) 8.] second-price auction with respect to both seller's revenue and allocative efficiency. Our results reject the revenue equivalence principle and indicate that English auctions may dominate the Vickrey auctions. However, we observe that the allocative efficiency of Vickrey auctions is higher than the English auctions.
Bibliographical noteFunding Information:
The third author's research was also supported in part by NSF Career grant number IIS-0092780 but does not necessarily reflect the views of NSF.
This research is supported in part by Treibick Electronic Commerce Initiative, Department of OPIM, University of Connecticut.
- Electronic commerce
- Laboratory experimentation
- Online auctions