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research article

Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions

Celis, L. Elisa
•
Lewis, Gregory
•
Mobius, Markus
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2014
Management Science

Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high-valuation bidders to buy-it-now. We analyze equilibrium behavior and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.

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Type
research article
DOI
10.1287/mnsc.2014.2009
Web of Science ID

WOS:000346204900004

Author(s)
Celis, L. Elisa
Lewis, Gregory
Mobius, Markus
Nazerzadeh, Hamid
Date Issued

2014

Publisher

Informs

Published in
Management Science
Volume

60

Issue

12

Start page

2927

End page

2948

Subjects

online advertising

•

real-time bidding

•

advertisement exchange

•

optimal auctions

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
INDY2  
Available on Infoscience
February 20, 2015
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/111631
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