From eBay´s second chance offer to B2B service pricing: Similarity and challenges

The second chance offer is a common seller practice on eBay. It consists of price discrimination against the losing bidder, who is offered an identical item at the value of his or her highest bid. Prior work has shown that, if the price discrimination is certain-that is, the items are always offered to bidders at their highest losing bids-bidders can predict it, resulting in revenue loss for the seller. The first part of this paper describes a more generalized case--allowing the seller to randomize his strategy. It examines a similar, more general problem: a seller has k items. They are sold to n bidders in a two-stage game. The first stage is a sealed-bid private-value auction with n bidders. The second stage is a take-it-or-leave-it offer to each of k-1 losing bidders; randomized between a fixed-price offer and a second-chance offer. It analyzes item scarcity and tests the approach on real eBay data. The second part of the paper draws comparison between price discrimination practice on eBay--second chance offer, and the opportunity and challenges of such practice in B2B service market.