Working Paper: NBER ID: w9795
Authors: Alexandre Ziegler; Edward P. Lazear
Abstract: Most items are sold to consumers by retail stores. Stores have two features that distinguish them from auctions. First, the price is posted and a consumer who values the good at more than the posted price is sold the good. Second, the sale takes place as soon as the consumer decides to buy. In contrast, auctions have prices that are determined ex post and the potential consumer must wait until the auction is held to buy the good. Consequently, auctions result in false trading', where buyers sometimes pass up other valuable opportunities while waiting for the auction to occur or instead make undesired duplicate purchases. Retail stores dominate auctions when the good is perishable and/or becomes obsolete quickly, when the market is thin, and when close substitutes for the good are plentiful. These predictions are consistent with a number of observed phenomena.
Keywords: No keywords provided
JEL Codes: D40; D44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| goods are perishable or become obsolete quickly (L15) | Preference for Retail Stores (L81) |
| thin markets (G10) | Preference for Retail Stores (L81) |
| waiting costs imposed by auctions (D44) | Bidder Participation in Auctions (D44) |
| Low Bidder Participation (D44) | Expected Revenue from Auctions (D44) |
| thick markets (D49) | Preference for Auctions (D44) |
| High Bidder Arrivals (D44) | Increased Expected Selling Prices (D49) |
| Perishability, Market Thickness, and Substitutes (D43) | Choice Between Store and Auction (D44) |