Expertise in Online Markets

52 Pages Posted: 11 Nov 2014 Last revised: 24 Nov 2014

See all articles by Stylianos Despotakis

Stylianos Despotakis

City University of Hong Kong (CityU) - Department of Marketing

Isa Emin Hafalir

University of Technology Sydney (UTS); Carnegie Mellon University - David A. Tepper School of Business

R. Ravi

Carnegie Mellon University - David A. Tepper School of Business

Amin Sayedi

University of Washington - Michael G. Foster School of Business

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

Despotakis, Stylianos and Hafalir, Isa Emin and Ravi, R. and Sayedi, Amin, Expertise in Online Markets (November 4, 2014). Available at SSRN: https://ssrn.com/abstract=2522060 or http://dx.doi.org/10.2139/ssrn.2522060

Stylianos Despotakis

City University of Hong Kong (CityU) - Department of Marketing ( email )

Tat Chee Avenue
Kowloon
Hong Kong

Isa Emin Hafalir (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

R. Ravi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Amin Sayedi

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://faculty.washington.edu/aminsa/

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