The Role of the Buyout Price in the Internet Auction

Abstract

We consider an Internet auction with the buyout price as an

optional feature. Under IID assumption and risk-neutral buyers, we

show that the expected revenue to the seller from the Internet auction

with the buyout price is larger than the expected revenue from the

Internet auction without the buyout price. Moreover, given the uniform

distribution for reservation values, the revenue gain of employing the

buyout price option is getting smaller as the number of potential buyers

becomes larger.