Buyer Behavior under Best Offer Mechanism: A Theoretical Model and Empirical Evidence from eBay Motors
36 Pages Posted: 3 Aug 2010 Last revised: 2 Feb 2012
Date Written: July 25, 2011
Abstract
The popular Internet marketplace, eBay, introduced the Best Offer format in 2005. This paper studies buyer’s behavior under such a mechanism. We characterize this mechanism as a sequential-move game between the seller of an item and its buyers. Our model suggests that a rational buyer’s offer price increases in relations to the number of buyers who have previously made an offer on the item and the Buy-It-Now price chosen by the seller. On the other hand, the offer price decreases for items which have been listed on eBay for a longer period of time. We empirically test our theoretical predictions using data on the sale of Toyota Camry cars on eBay Motors. The empirical evidence is found to be consistent with our model.
Keywords: Name-Your-Own-Price mechanism, eBay, Best Offer, sequential equilibrium, e- commerce
JEL Classification: C72, D49, L81
Suggested Citation: Suggested Citation