Estimating an auction platform game with two-sided entry Marleen Marra∗ January 1, 2021 Abstract I study endogenous entry of bidders and sellers in an auction platform, and how they respond to platform fee changes. As the platform is more valuable to bidders when more sellers enter, and vice versa, welfare impacts of fee changes are theoretically ambiguous. I exploit equilibrium outcomes of the auction plat- form game to quantify such network effects and estimate the model with data from a wine auction platform. A particular novel element of the model is that it captures entry of heterogeneous sellers and its relation to bidder entry: higher- value sellers exit when raising fees, increasing the platform's attractiveness to buyers anticipating lower (reservation) prices. I show that relevant model prim- itives are identified from variation in reserve prices, transaction prices, and the number of bidders. Results highlight the role of selection in redesigning plat- forms with listing heterogeneity and reveal pricing strategies to increase both platform profitability and user welfare. JEL codes: D44, C57, L10 Keywords: Ascending auctions, Auctions with entry, Seller selection ∗Sciences Po, Department of Economics, 28 Rue des Saints-P`eres, 75007 Paris, France. E-mail:
[email protected]. Tel: +33 (0)695 526 146. 1 How should a peer-to-peer auction platform allocate fees between buyers and sellers? What antitrust damages should be awarded when the platform raises fees anticompetitively? Auction platforms facilitating trade between users necessarily generate indirect network effects as they are more valuable to potential bidders when more sellers enter, and vice versa.