Simulative and Game-Theoretical Approaches for Strategic Behavior in Name-Your-Own-Price Markets

Name-Your-Own-Price is a popular interactive pricing mechanism in Electronic Commerce that lets both, buyer and seller, influence the price of a product. At the outset, a seller defines a secret threshold price indicating the minimum price he is willing to sell the product for. Subsequently, a buyer is asked to place a bid indicating her willingness-to-pay for the product offered. If the bid value is equal or above the seller’s threshold price, the transaction is initiated for the price denoted by the buyer’s bid. In this paper we show how buyer and seller strategically behave in such markets and derive from the results what product classes seem suitable for sale in a Name-Your-Own-Price-channel. To address this question, we apply two different approaches an agent-based simulation and a game theoretical approach and illustrate thereby the advantages and disadvantages of both methods.