Imperfect competition in online auctions (Q2092772)

The article examines the online markets where two sellers sequentially choose reserve prices and then hold ascending auctions. Buyers can bid in both auctions and can switch between them as frequently as they like. It is shown that the first-arriving seller chooses a reserve price just low enough to safeguard against being undercut by the second seller, and in the equilibrium the first-arriving seller makes more profit than the second-arriving seller. Both reserve prices are set above the marginal costs of the sellers resulting in inefficiency. The authors' results apply to both centralized seller-offer dual auctions and a decentralized sales procedure in which sellers set reserve prices sequentially. The main result is contained in the following statement: In a simultaneous pricing game between two sellers in a seller-offer double auction where buyers bid sincerely: (i) no pure strategy Nash equilibrium exists; (ii) a mixed strategy Nash equilibrium does exist; (iii) in every mixed strategy Nash equilibrium, each seller's support has supremum equal to \(r_2^{\ast}\), neither places any probability mass on \(r_2^{\ast}\), and each seller earns an expected payoff of \(\pi_2(r_2^{\ast})\). Section 5 provides a numerical example with three buyers whose values are distributed uniformly.