NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hamid Nazerzadeh

University of Southern California
Marshall School of Business
3760 Trousdale Pkwy
Los Angeles, CA 90089

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NBER Working Papers and Publications

December 2012Buy-it-now or Take-a-chance: Price Discrimination through Randomized Auctions
with L. Elisa Celis, Gregory Lewis, Markus M. Mobius: w18590
Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.

Published: L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2014. "Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions," Management Science, INFORMS, vol. 60(12), pages 2927-2948, December. citation courtesy of

 
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