Buy it now: A hybrid market institution

Abstract

This paper analyzes seller choices and outcomes in approximately 700 Internet auctions of a relatively homogeneous good. The ‘Buy it Now’ option allows the seller to convert the auction into a posted price market. We use a structural model to control for the conduct of the auction as well as product and seller characteristics. In explaining seller choices, we find that the ‘Buy it Now’ option was used more often by sellers with higher ratings and offering fewer units; and posted prices were more prevalent for used items. In explaining auction outcomes, we find that auctions with a ‘Buy it Now’ price had higher winning bids, ceteris paribus, whether or not the auction ended with the ‘Buy it Now’ offer being accepted, possibly reflecting signaling or bounded rationality. We also find that posting prices, by combining ‘Buy it Now’ and an equal starting price, was an effective strategy for sellers in the sample.Market institutions; posted prices; auctions; e-commerce