A NOTE ON DUTCH AUCTIONS WITH TIME CREDITS

Yumiko Baba

No e053, Working Papers from Tokyo Center for Economic Research

Abstract: A German internet auction site creates a new auction procedure as an application for iPhone. It is a Dutch auction with time credit. First, the seller announces a time credit fee rate. Next, each bidder purchases time credit and pays corresponding participation cost. Lastly, a Dutch auction starts and those who buy positive time credit can submit bids. A bidder cannot stay in an auction longer than the amount of time credit he purchased in advance. We can solve the model explicitly for uniform distribution functions and show that the equilibrium time credit fee rate is positive. We cannot collect field data because it is not approved by Apple yet. Therefore, we ran an experiment and found that we could reject the null hypothesis of the seller's revenues being the same between a Dutch auction with zero and positive time credit fee rates. The seller 's revenues from Dutch auctions with time credit are close to the one from the optimal auction mechanism, but our data shows the rate of time credit does not affect the seller's revenue as long as it is strictly positive, which contradicts to the theoretical prediction.

Pages: 24 pages
Date: 2013-02
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