Pay-per-bid auctions require all bidders to pay for every bid. However, paying bidding fees without receiving the auction item in return often causes high dissatisfaction among losers, resulting in heated discussions and high churn rates. To reduce these negative reactions, pay-per-bid auctioneers created the Buy-Now feature, which allows losers to put all or part of the bidding fees that they paid during an auction toward buying the auction item. Using unique data, including individual customer bidding histories and cost data from more than 6,800 pay-per-bid auctions, we find that, overall, the Buy-Now feature leads to more aggressive bidding behavior, attracts more bidders, increases loyalty, and results in a higher profit per auction. However, for voucher auctions that represent common value auctions, the Buy-Now feature causes a decrease in the number of bidders and the profit per auction, although we find an increase in the average number of bids per bidder. We also show theoretically that a bidder can pursue a risk-free bidding strategy. However, we find empirically that bidders rarely use this strategy.
The Internet makes it easy to offer large assortments of products, tempting managers to chase the “long tail”—that is, the phenomenon in which niche products gain a significant share of demand among all products. Yet few studies empirically examine the existence and drivers of this long tail phenomenon. This study uses a unique data set with 843,922 purchases from 143,939 customers that a monopolistic video-on-demand operator observed over 111 weeks after its launch of the service. The current analysis centers on the effects of increasing assortment sizes and improved search technologies on measures of the long tail, such as per customer demand, the share of products purchased from the assortment, the distribution of demand across products, and the concentration of demand. Increases in assortment sizes and better assortment quality lead to increases in demand per customer and a longer tail. The length of the tail (i.e., share of purchased products) is also driven by new customers and seasonal effects, such as school vacations, whereas the presence of high-quality blockbuster products shortens the tail. Different search technologies can shift demand toward niche products as well as toward blockbuster products.