Congestion Pricing in an Internet Market

This paper analyzes a unique dataset of art auctions on eBay. We studythe behavior of buyers and sellers, demand and supply, by means of anovel structural estimation approach. Our empirical framework considersthe process of arrival of new bidders as well as the distribution ofbidder valuations of artworks being auctioned. We use this empiricalframework to quantify the effect of market congestion, and congestionpricing strategies implemented by the market intermediary. Because weexplicitly model the process of arrival of new bidders, we can estimatethe effect of congestion pricing on the number of bidders, thedistribution of bidders' valuations, and the final selling price. Usingthe structural model we can also measure the impact of congestionpricing on the revenues of the artists and the market intermediary, aswell as its effect on consumer surplus. Our results indicate that thecongestion pricing policy acts as a coordination mechanism thatfacilitates the match between buyers and sellers.