The optimal format to sell a product through the internet: Posted price, auction, and buy-price auction

Motivated by the proliferation of online selling, we study a seller's decision problem: The seller has one unit of product and needs to choose a selling format among three different ones (posted price, auction, and buy-price auction), as well as to decide upon the corresponding decision variables. By incorporating the auction participation cost of the bidders and the operational cost of the seller, we demonstrate that these two costs play an important role in the choice of a selling format. We first characterize and identify the customers' decision rule for buy-price auction and then present the seller's optimal choices by comparing the performance of the three formats. Through a comprehensive numerical study, we investigate the performance of the three selling formats by changing the experimental factors.