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Chapter 11 Is an Auction the Best Market Mechanism for
Digital Goods? Many retail businesses have jumped on the Internet auction bandwagon and paid substantially high fees to learn and develop proper business strategies for this new environment. By using a virtual field experiment, we show that a discriminatory-price ascending-bid auction, which is the most popular auction mechanism on the Internet, serves consumers better than it does the sellers or producers in a digital economy. That is, the average prices for digital goods in these auctions are substantially lower than the prices in a posted-price market. This indicates that it is not so wise for information goods sellers to utilize Internet auctions, if there is a marketplace with posted-price mechanisms that sells comparable items, or if a seller does not have special advantages or strategies in this new market institution in a digital economy |