Research Papers
“Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods” (Job Market Paper) [Download]
Priceline.com, a website helping travelers obtain discount rates for travelrelated items, gained prominence for its Name Your Own Price system. Under Name Your Own Price, a traveler names his price for airline tickets, hotel rooms, or car rentals. Priceline then checks if there is any seller willing to accept the offer. If no one accepts, the buyer has to wait for a certain period of time (the lockout period) before rebidding. This paper builds a one-to-many dynamic model without commitment to examine the buyer's and the sellers' equilibrium strategies. We show that without a lockout period, in equilibrium, the sellers with different costs are either almost fully discriminated or pooled in intervals except the one with the lowest possible cost. In the latter case, the buyer does not raise the bids much until the very end, so the price pattern is convexly increasing, consistent with the empirical finding, and most transactions occur just before the day of the trip, which illustrates the deadline effect that is observed in many negotiation processes. The lockout period restriction, which limits the buyer's bidding chances and seems to hurt the buyer, thus moves the transactions forward and can actually benefit a buyer in some circumstances.
“One-to-Many Negotiation Between a Seller and Asymmetric Buyers”
A seller with an indivisible object negotiates with two asymmetric buyers to determine who gets the object and at what price. The seller repeatedly submits take-it-or-leave-it offers to the two buyers until one of them accepts. Unlike a Dutch auction, the seller has the discretion to offer two different prices to the two buyers. We show that when committing to some price paths is possible, the optimal outcome for the seller stated by Myerson (1981) is achievable. When commitment is impossible, the optimal outcome is no longer attainable. Instead, there exists an equilibrium such that the seller’s equilibrium payoff is the same as that in a secondprice auction, which implies that the seller’s payoff might be lower than in a Dutch auction. The result thus illustrates the value of a simple institution like a Dutch auction, which seems to restrict a player’s freedom but actually benefits the player by providing a commitment tool. Our analysis also sheds light on the procurement literature.
“Screening with Resale and Limited Contractibility: A Rationale for Selling in Bulk Packages”
This paper provides a rationale for why a seller may package goods in bundles too large for a consumer to consume all by himself. In this model, a seller first determines the package quantity along with the package prices. After seeing the quantity-price menu provided by the seller, buyers choose which package to buy. If resale is costless among buyers, arbitrage guarantees the linearity of prices and the seller is not able to discriminate the buyers. However, we show that selling in bulk packages is an alternative way for the seller to discriminate the buyers. In equilibrium, buyers with higher valuation buy the big package directly from the seller, and buyers with lower valuation wait to buy from resale. By setting a proper package price, the seller can extract the benefit from screening. Furthermore, when the buyers’ valuations are correlated, selling in bulk packages allows the seller to incorporate a buyer’s information about others.