Managing Multiple Selling Channels Online: A Simulation Study of Selling with Posted-Price and Open-Bid Auctions

Abstract

We use a simulation to study the profitability of selling consumer goods online using posted price and auction simultaneously. We consider the open ascending-bid auction mechanism and develop a model of consumers' behavior when faced with the choice between the two channels. With the simulation we investigate the best designs of the dual channel and compare its performance with that of two alternative selling regimes: only auction and only posted price. We find that the best designs of dual channels with open-bid auctions differ from those of dual channels with sealed bid auctions previously studied. Specifically, the auction length is always set at the maximum level, and the designs are not affected by consumers' sensitivity to a delay in receiving the item. In addition, whether the risk of cannibalization of posted price sales by the auction is high or low, the dual channel regime outperforms the other two regimes when designed optimally. However, if the two channels are managed independently of each other, the dual channel outperforms the single channel only when cannibalization risk is low.