Abstract:

In eBay "Buy-It-Now'' (BIN) auctions, sellers make a take-it-or-leave-it price (BIN-price) offer prior to the auction that buyers can either accept or reject. In the case of acceptance, the transaction takes place at the BIN-price. In the case of rejection, the final price is determined by the auction. This article studies how eBay sellers set BIN-prices and whether they benefit from using them. We apply a new experimental approach that combines the advantages of lab and field experiments. We find that the eBay format leads to prices substantially below those expected in second-price auctions. Moreover, our results reveal that the publicly available information on eBay about buyer experience and bidding behavior correlates with the observed price deviation. When deciding on the BIN-price, sellers respond to this information strategically. We also find that more experienced sellers ask for higher BIN-prices, whereas seller risk aversion does not affect their price decisions. Compared to an eBay auction without a BIN-price, the BIN-auction is more efficient and generates significantly higher revenue.