Institutional dependencies in dynamic buyout price models for online auctions

• Published in: Information systems and e-business management Vol. 10; no. 3; pp. 351 - 366
• Main Authors: Vragov, Roumen, Shang, Richard D., Lang, Karl R.
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer-Verlag 01.09.2012; Springer Nature B.V
• Subjects: Auctions; Business and Management; Design; Design engineering; Dynamics; Economics; Electronic commerce; Information systems; Information Systems Applications (incl.Internet); IT in Business; Laboratories; Management; On-line systems; Online; Original Article; Prices; Pricing; Pricing policies; Purchasing; Replication; Studies; Internet auction design; Market institution; Experimental economics; Dynamic auctions; Buy-it-now prices; Buyout pricing
• ISSN: 1617-9846; 1617-9854
• DOI: 10.1007/s10257-011-0168-2

There is disagreement in the auction literature on the question of whether dynamic Buy-It-Now (BIN) prices can increase the efficiency of online auctions, compared to static BIN price auctions. In a previous paper (Vragov et al. 2010 ), we reported experimental evidence that suggested, contrary to the current theoretical auction literature, that dynamic BIN pricing is indeed economically more efficient. The current paper presents a replication study of this research that interestingly fails to reproduce the earlier findings. It is based on the same general experimental design, but modifying the implementation of the specific trading institution by using a linearly declining BIN price (Online Linear Dutch Auction—OLDA) rather than the discrete one-time price change (Online One-time BIN-price Change Auction—OOBCA) that was used in the previous study. OLDA is more dynamic in nature than OOBCA, yet OOBCA outperforms a generalized static online auction design in the laboratory while the OLDA does not. We explain these different results, and thus resolve the ostensible contradiction between the two sets of experiments, by concluding that the specific implementation of the trading institution (i.e., the dynamic BIN pricing mechanism) has a significant effect on the overall market efficiency. In other words, our research finds that the efficiency of dynamic buyout price auctions is institution-dependent. This has important theoretical implications as most formal auction models assume that the auction outcome is institution-free. We also discuss some practical implications of our findings.