Analyzing the simultaneous use of auctions and posted prices
for on-line selling
(Research Seminar, April 24, 2003)
In the business to consumer market, many firms sell identical products on-line using auctions and posted prices at the same time. In this paper, we develop and analyze a model of the key tradeoffs faced by the seller in such a dual-channel setting. We model consumer channel choice behavior and find that consumers who value the item for more than its posted price use a threshold policy to choose between the two channels. The threshold defines an upper bound on the remaining time of the auction. Our results show that a monopolist seller can increase his profits by offering auctions and a fixed price concurrently. We find that there are two dominant auction design strategies in this setting, short one-unit auctions and long auctions with many units. The optimal posted price of the dual channel is found to be higher than the optimal posted price in the absence of auctions. We identify when each strategy is optimal for the seller.