The Buy-it-now Option, Risk Aversion, and Impatience in an Empirical Model of eBay Bidding

Abstract

[PRELIMINARY AND INCOMPLETE] In 2000, eBay introduced its “buy-it-now” feature, allowing sellers to post a buy price at which a bidder can end the auction early. Theory suggests that a buy price can increase the seller’s expected revenue if bidders are risk-averse or impatient. The linkage between riskaversion, impatience, and the buy-it-now feature also suggests that data from these auctions may be informative about risk aversion and time preference parameters, which are typically dicult or impossible to identify in conventional auction data. In this paper, we develop a structural model for bidding in auctions with eBay’s buy-it-now feature, and apply this to data collected from eBay auctions of Pentium laptops. Because the buy-it-now feature disappears after the first active bidder rejects the buy price, it is important to capture the temporal structure of eBay auctions. We model arrival of potential bidders as a Poisson process, and specify how bidders choose to enter the auction based on information available when they arrive. In eBay, bidders are often observed to raise their bids later in the auction, which is dicult to explain using conventional theory for second-price auctions. To allow for bidders to raise their bids without making assumptions on why or how this rebidding occurs, we follow Haile and Tamer (2003) and Canals-Cerda and Pearcy (2004), and use an “incomplete” specification for bidder behavior. We develop a novel estimation technique for our model, based on partial likelihood arguments combined with moment simulation.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 27 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.