Analyzing the Dual-Channel Mechanism for Online Selling

Many firms can sell identical products online using auctions and posted prices simultaneously. This paper develops a model of the key trade-offs sellers face in such a dual-channel setting, built about the optimal choice of the auction quantity, the auction duration, and the posted price. Our discussion is under the finite inventory of the seller. We model consumer choice of channels through a threshold type function based on the consumer´s power exponential utility function, prove a unique auction-participation symmetric equilibrium exists, and demonstrate its properties. The model enables the seller to segment the market appropriately so that the two channels reinforce each other and cannibalization is mitigated.