Partial-Repeat-Bidding in the Name-Your-Own-Price Channel

• Authors: Scott Fay
• Venue: Marketing Science
• Year: 2004

This paper presents an initial examination of an emerging business model, the Name-Your-Own-Price (NYOP) channel, as popularized by priceline.com. Focusing on how to optimally structure such market interactions, I ask whether it is more profitable to restrict individuals to a single bid, as is currently done byPriceline, or conversely, to allow consumers to continue bidding if the previous offer was rejected. I find that both market structures yield the same expected profit. In practice, a single-bid policy may not be perfectly enforceable, especially in the Internet environment, because a sophisticated user can circumvent such a policy by camouflaging one's identity or otherwise manipulating the bidding procedure. Thus,Priceline's single-bid restriction is likely to result inPartial-Repeat-Bidding, the case in which some consumers are limited to a single bid while other, sophisticated users may rebid. I ask whether such surreptitious bidding is detrimental to the NYOP firm and find that profits are lower than if such opportunistic behavior were absent. Surprisingly, I find that the impact of the number of repeat bidders on profits is not monotonic. Thus, if it is prohibitively costly or logistically infeasible for the NYOP firm to eliminate surreptitious rebidding behavior, the firm may, in fact, benefit from encouraging, rather than discouraging, users to rebid. The direction that increases profits depends on the percentage of sophisticated bidders.