MIAMI BEACH, Fla. – Researchers studying eBay data for the last three years have identified four trends that explain why auction buyers pay more or less for the same item, according to a paper being delivered at the annual convention of the Institute for Operations Research and the Management Sciences.
“What Factors Drive Final Price in Internet Auctions? An Empirical Assessment of Coin Transactions on eBay” was presented by Charles A. Wood, assistant professor of Management, Mendoza School of Business, University of Notre Dame.
About the study. Wood uses operations research methods to examine 7,362 rare coin transactions on eBay between 1999 and this year.
Wood found that an increase in market depth in online auctions has changed what seller strategies are successful in online auctions.
Market depth of online auctions measures the number of buyers and sellers that participate in online auctions. The author’s results have potential meaning for other auction items, as well.
Although the author stresses that the work is still preliminary, the initial results show several factors that impact price in online auctions.
* Weekend effect: Items sold in auctions that end on the weekend sell for around 2 percent higher than auctions ending on a weekday.
Furthermore, this result is fairly consistent across the three years of the study, (2.6 percent in 1999, 2.3 percent in 2000, and 2.2 percent in 2001) despite increases in market depth during this period.
More time to consider. The observation that items sold on the weekend command a constant increase suggests that the weekend effect is a personal characteristic, not a market characteristic, and may indicate that people are willing to pay more for the same item when they have more time to consider the purchase.
* Picture effect: Items shown in an accompanying online photograph have been selling for a price premium of 11.3 percent in 2001, which is over double the effect shown in both 1999 (5.7 percent) and 2000 (6.8 percent).
The author speculates that the increase is due to a more demanding consumer who now expects sellers to present all information available using advanced technological capabilities.
* Reputation score effect: The author’s results show that experienced sellers have a greater advantage over inexperienced sellers in 2001 than they did in 1999 or 2000.
Better reputations. In 2001, sellers with higher eBay reputations scores have over twice the increase in price premium (6.8 percent) that they had in 2000 (5.3 percent) and 1999 (4.8 percent) when compared with sellers who have low reputation scores.
Since the reputation score tends to increase with time and activity, the authors contend that this score, in fact, measures experience rather than reputation.
* Auction length effect: Auctions that last longer attract more bidders. However, this effect is declining as the online auction market increases in depth.
In 1999, longer-length auctions commanded a 5.2 percent premium. By 2001, this has been reduced to only 1.7 percent.
As online auction market depth increases, more and more buyers search for good deals, thus increasing shorter auctions’ ability to attract bidders.
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