Bidding for bidders? How the format for soliciting supplier participation in NYOP auctions impacts channel profit

In a name-your-own-price (NYOP) auction, consumers bid for a product or service. If a bid exceeds the concealed threshold price, the consumer receives the product at her bid price. This paper examines how to optimize the interactions between the NYOP retailer and service providers, while, at the same time, managing the bid acceptance rates in order to induce the desired consumer bidding behavior. Channel profit is impacted by how the retailer decides whether or not a given consumer bid will be accepted and, if so, which service provider is chosen to supply a unit of the product to the consumer. We devise a mechanism, the modified second-price auction, which maximizes channel profit.