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

See all articles by Ching-I Huang

Ching-I Huang

National Taiwan University, Department of Economics

Jong-Rong Chen

National Central University at Taiwan

Chiu-Yu Lee

National Central University

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

Huang, Ching-I and Chen, Jong-Rong and Lee, Chiu-Yu, Buyer Behavior under Best Offer Mechanism: A Theoretical Model and Empirical Evidence from eBay Motors (July 25, 2011). Available at SSRN: https://ssrn.com/abstract=1652574 or http://dx.doi.org/10.2139/ssrn.1652574

Ching-I Huang (Contact Author)

National Taiwan University, Department of Economics ( email )

No. 1 Section 4, Roosevelt Road
Taipei, 106319
Taiwan

Jong-Rong Chen

National Central University at Taiwan ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Chiu-Yu Lee

National Central University ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

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