Modeling competitive bidding: a critical essay
Management Science
Analysis and Design of Business-to-Consumer Online Auctions
Management Science
Price formation and its dynamics in online auctions
Decision Support Systems
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This paper discusses a statistical model regarding intermediate price transitions of online auctions. The objective was to characterize the stochastic process by which prices of online auctions evolve and to estimate conditional intermediate price transition probabilities given current price, elapsed auction time, number of competing auctions, and calendar time. Conditions to ensure monotone price transitions in the current price and number of competing auctions are discussed and empirically validated. In particular, we show that over discrete periods, the intermediate price transitions are increasing in the current price, decreasing in the number of ongoing auctions at a diminishing rate, and decreasing over time. These results provide managerial insight into the effect of how online auctions are released and overlap. The proposed model is based on the framework of generalized linear models using a zero-inflated gamma distribution. Empirical analysis and parameter estimation is based on data from eBay auctions conducted by Dell. Copyright © 2011 John Wiley & Sons, Ltd.