A Structural Model of Competing Sellers: Auctions and Posted Prices

In an original data set of goods listed for sale online, I observe that multiple selling mechanisms are popular with buyers and sellers in the compact disc market. I construct a model to explain how heterogeneous sellers choose between selling in an auction versus posting a …xed price. An important contribution of this work is that I model competing sellers instead of a monopolist. In doing so, I show that accounting for the competitive structure of the marketplace is vital in explaining the coexistence of mechanisms. In the model, the value of each seller’s outside option is nonparametrically identi…ed. The main result of the paper is that sellers with more valuable outside options choose to post a …xed price. For buyers, my approach for estimating the unobserved number of potential buyers in each market compares favorably to an approach that assumes there are in…nitely many buyers. My …ndings are consistent with a highly competitive market that is more closely approximated by perfect competition than monopoly. I am deeply indebted to my advisor, Tong Li, and the members of my dissertation committee: Andrew Daughety, Jennifer Reinganum, and Mikhael Shor. I am also grateful to Christopher Adams, Dan Levin, and Robert Zeithammer for helpful discussions. Finally, the excellent research assistance of Shanshan Jiang is acknowledged. Contact: Department of Economics, Vanderbilt University. E-mail address: [email protected]. Telephone: (615) 517-0823. Fax number: (615) 343-8495.