Joint Bidding in the Name-Your-Own-Price Channel: A Strategic Analysis

Abstract

In this paper, we study the name-your-own-price (NYOP) channel. We examine theoretically and empirically whether asking consumers to place a joint bid for multiple items, rather than bid one item at a time as practiced today, can increase NYOP retailers' profits. Relatedly, we also examine whether allowing consumers to self-select whether to place a joint bid or itemwise bids increases retailers' profits and consumers' surplus. We construct a dynamic model that incorporates both demand uncertainty and supply uncertainty to address these issues. Our theoretical analysis identifies the conditions under which joint bidding can increase both NYOP retailers' profits and consumers' surplus. We find that some consumers might bid more for the very same items when they place joint bids. The increase in bid amount is related to the fact that joint bidding reduces the chance of mismatch between NYOP retailers' costs and consumer bids. We conducted a laboratory study to assess the descriptive validity of some of the model predictions, because there are no field data on joint bidding in the NYOP channel. The results of the study are directionally consistent with our theory.