Adaptive Price Mechanism and a Sequential Reverse Auction Model in Social Commerce

Abstract

This paper analyzes a two-stage auction inspired by price negotiations in Facebook Group Marketplace. In the proposed auctions, the buyer collects the first-round offers of the sellers, and confronts the set of sellers who asked for the second lowest,third lowest,fourth lowest amount etc... with the lowest price offer received. The buyer decides the set of sellers based on the quality of the product that can be seen using the distribution function of the common value and try to minimize the delivery cost and comparing with the lowest bid price in the first round as well.This is because the true valuation is not know to the buyer and the seller. These negotiating tactics is proposed to be optimal in some sense. The sellers respond to this negotiating tactic by inferring the buyer's valuation and somehow revise the offer less than the first round.In the end the buyer decide the best sellers comparing the first best bid and the set f revised bids.The paper derives a theoretical model, along with a piece of empirical evidence, of the determination of prices at which a seller sells objects in the "Facebook Group Marketplace" using an adaptive price mechanism and a sequential reverse auction model. This is an informal marketplace and has been developed by Facebook users. The paper considers the single object demand case. In the end, the paper explains the model empirically. The interesting part of this auction process is that both the buyer and the seller have the private information to exploit each other. Hence, no one is in an advantageous position. The paper gives a mechanism to sell the indivisible object in an asymmetry auction. Especially, tries to answer the question of the fact that, if buyers in an auction are uncertain about the value of the item being sold, how will the seller set a bid in the reverse auction mechanism?Buyers do not always know exactly how much they value a good. An adoptive price mechanism has been proposed here so that different bids can be set to heterogeneous buyers.