Simulation of Online Selling with Posted-Price and Auctions: Comparison of Dual Channel's Performance under Different Auction Mechanisms

In this paper we use a simulation model to extend previous analytical research on a firm selling consumer goods online using posted price and auction at the same time. With the simulation we investigate three selling regimes: dual channel with sealed-bid auction; dual channel with open-bid auction, and a single channel with only posted price. We examine how the auction format affects the optimal design of the dual-channel, its performance relative to the single channel, and the sales in each channel. We find that in 81% of the cases we examine, the design that maximizes the average revenue from a dual channel with open-bid auction is the same as the design that maximizes the average revenue from a dual channel with sealed-bid auction. Also, the dual/open regime usually outperforms the dual/sealed regime, and both dual channel regimes outperform the single channel.