The Fixed Price Offer Mechanism in Trade Me Online Auctions

Abstract

The Fixed Price Offer (FPO) mechanism in Trade Me auctions allows sellers to make a take-it-or-leave-it offer at the conclusion of an unsuccessful auction. We investigate the effects of the FPO option on strategies and outcomes in independent-value auctions. The FPO option induces some bidders with a value above the seller’s reserve to wait for an FPO instead of bidding. Overall, the FPO option increases the probability of sale but reduces expected seller revenue compared to a standard auction. The impact of the FPO option is reduced when the number of bidders increases.fixed price offer; private value auction; on-line auction; optimal reserve price; second chance offer