Extended Abstract for Second-Chance Offers

eBay has become one of the most important market places for retail goods worldwide. Yet important aspects of the strategic bidding incentives in eBay auctions remain unexplored. eBay’s main sales mechanism is closely related to a second-price auction, which has been extensively studied. There are, however important difference to a standard second-price auction. In particular, the eBay auction allows the seller to sell multiple units of the same good. While the seller is committed to sell the first unit to the highest bidder at essentially the second-highest bid, she also retains the option to make “second-chance offers”. She may offer a second unit to the secondhighest bidder at the second-highest bid, a third unit to the third-highest bidder at the third-highest bid, and so on. The opportunity to make second-chance offers raises a number of interesting questions. In particular, what is the impact of second-chance offers on the seller’s revenue, the buyers’ welfare, and on the aggregate welfare of all market participants? And: does the eBay mechanism have optimality properties as a multi-unit auction, parallel to the well-known optimality properties of the second-price auction mechanism in a single-unit world?