Expertise in Online Markets
52 Pages Posted: 11 Nov 2014 Last revised: 24 Nov 2014
Date Written: November 4, 2014
Abstract
We examine the effect of the presence of knowledgeable buyers (experts) in online markets where auctions with a hard close and posted prices are widely used. We model buyer expertise as the ability to accurately predict the quality, or condition, of an item. In auctions with a hard close, sniping – submitting bids in the last minute – emerges as an equilibrium strategy for experts. We show that non-experts bid more aggressively as the proportion of experts increases. As a consequence, we establish that the auction platform may obtain a higher revenue by (i) enforcing a hard close and allowing sniping, and (ii) withholding information regarding the quality of the item. Moreover, in online markets where both auctions and posted prices are available, we show that the presence of experts allows the sellers of high quality items to signal their quality by choosing to sell via auctions.
Keywords: Auctions, Posted Prices, Experts, Signalling, Sniping
JEL Classification: D62
Suggested Citation: Suggested Citation