Auction versus posted price mechanisms in online sales: The roles of impatience and dissuasion

Subhasish M. Chowdhury, Debabrata Datta, Souvik Dhar

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If all potential buyers participate in a first-price auction, then (theoretically) the auction price weakly exceeds the price placed by the seller under a posted-price mechanism. However, it is documented that in the online sellers prefer posted-price mechanism to auction. We aim to explain this empirical contradiction in terms of partial participation of the buyers in auction, prompted by impatience and dissuasion. Auction in internet often requires waiting, and hence many impatient participants may not join the auction process. Furthermore, a previous experience of failure in auction may also prompt buyers’ non-participation. We show, theoretically, that in the case of partial participation the price in auction may be lower; and posted-price turns out to be payoff dominant for both the buyers and the sellers. We then run a laboratory experiment and verify the presence of impatience (through waiting cost) and dissuasion factor (through previous failure) among the subjects.
Original languageEnglish
Pages (from-to)75-88
JournalStudies in Microeconomics
Issue number1
Publication statusPublished - 1 Jun 2019


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