A fundamental marketing problem faced by auctioneers is
the promotion of their auction in order to recruit
bidders. Merchants would like to attract as many bidders
as possible to an auction, since the higher the number
of bidders, the higher the expected winning price and
profitability. This suggests that an intense advertising
campaign that raises awareness for the largest possible
customer base would be desirable. However, from a
customer’s viewpoint a large number of competing bidders
decreases the perceived chance of winning, which
subsequently deters the customer from participating in
future auctions. In this paper we examine this tradeoff
between the auctioneers’ desire to expand their customer
base and the bidders’ desire for attractive values. We
model the entry decision of consumers based on their
expected gains from participating in the auction and
derive the auctioneer’s optimal advertising policy. Our
results suggest that controlling growth by limiting
advertising spending can encourage consumer retention
and increase an auctioneer’s long term profitability.
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