Auctions are quintessentially a variable pricing format, but recently the largest online auction sites have introduced a fixed-pricing element known as a buy-it-now option. This feature allows a bidder to immediately stop an ongoing auction and purchase the item at a fixed, posted price set by the seller. This feature is known as “Buy-it-Now”, “uBuy”, and “Buy-Now” at eBay, uBid, and Yahoo, respectively. For clarity we refer to all these services generically as buy-it-now. These buy-it-now features have become an important component of online auctions. eBay introduced its service in 2000. Subsequently it has been adopted by 45% of eBay’s U.S. auctions by the end of its first year (ZDNet, 2002). These buy-it-now auctions accounted for 28% of gross merchandise sales at eBay by the end of 2003 (eBay, 2003). Empirical work by Park and Bradlow (2005) also indicates that the buy-it-now feature is an important element in auction design.
During the recent financial crisis we have learned that the functioning of financial markets depends crucially on the availability of liquidity. This paper develops a model that shows how market liquidity is influenced by asymmetric information and a restricted market access. In equilibrium liquidity may be too high or too low, moreover the market may fail due to an adverse selection problem. I analyze how the market outcome can be improved by appropriate ex-ante and ex-post policy interventions. Furthermore I contribute to the discussion on the initial crisis response of the U.S. Federal Reserve in 2007 and 2008 by analyzing the effectiveness of an asset purchasing program that is financed by a change in the central bank’s balance sheet decomposition.
Sub-prime crisis in U.S. is currently the hottest topic of discussion around the globe. It started as a financial crisis and quickly assumed the form of general economic crisis. Some termed it as the beginning of “the second great depression” because of the enormous dislocation it has created across continents.
Such portents now appear to become a reality. As put aptly by Rakesh Mohan, “Even as every passing day unravels a little more of the underlying forces at work the complex nature of the derivatives used; the high degree of leveraging on poor, light or even absent collateral; the underestimation of risk pervading financial markets; the surprisingly sizeable exposures of large financial institutions to some of the debt instruments and derivatives in question; and the speed of contagion.” It is the resultant of a multiplicity of factors. It has serious implications for the global economy.
