Managing information diffusion in Name-Your-Own-Price auctions

In Name-Your-Own-Price auctions (NYOP), prospective buyers bid against a secret reserve price set by the seller and only win the auction at the price of their bid if it is equal or higher than the seller’s reserve price. Thus, bidders who want to win the auction without too much overbidding have a strong incentive to learn more about the seller’s secret reserve price, possibly via their own network of friends, digital networks or online communities. Information-sharing and information diffusion in digital networks can change bidding behavior and thus have important implications for sellers in NYOP markets. We develop a Decision Support System that enables sellers to assess the impact of information diffusion and to analyze the profitability of different seller strategies. We build the system from the bottom up by developing and testing a model of agents’ bidding behavior which constitutes the basis for analyzing the effects of different network structures and seller strategies on profit. Sellers can react to information diffusion by setting the secret reserve price optimally, taking into account this strategic element by the provision of a forum and by decreasing the quality of information through forum intervention. Our results show that information diffusion can either decrease or increase seller profit depending on the buyers’ initial beliefs about the seller’s costs. We also show that the structure of the underlying social network is an important driver for information diffusion and that data about social networks might hence be of value to decision makers.