Imperfect competition in online auctions
Abstract
We study online markets where two sellers sequentially choose reserve prices and then hold ascending auctions. Buyers can bid in both auctions and can switch between them as frequently as they like. We adapt the revenue equivalence approach of Myerson (1981) to obtain total revenue generated by the buyers and the split of this revenue between the sellers. We find a unique (ɛ-perfect) equilibrium outcome, in which the first seller to choose a reserve price enjoys a first-mover advantage, maintained by selecting a price low enough to discourage the second seller from undercutting this price. Both prices are above the sellers’ marginal costs, but below what a monopolist would set. Our results contrast with Burguet and Sákovics (1999), in which the sellers simultaneously choose reserve prices for separate, traditional sealed-bid auctions in which each buyer can bid in a single auction only. They do not find a unique equilibrium outcome (due to mixed strategies) and they only partially characterize equilibrium payoffs.