What determines the prices of goods traded in online auctions?Human Computer Interaction

The growth of the internet has created new opportunities for trading by auction. A huge volume of goods is now traded daily through the eBay websites around the world. Online auctions provide a convenient low-cost environment for buyers and sellers to trade. The search engine technology underlying online auctions allows buyers and sellers to trade specialised products in liquid markets.

Founded in 1995 by Pierre Omidyar, eBay created an electronic platform for the sale of goods and services. eBay is not a traditional firm, even by the standards of the internet, because it does not hold any stock. Instead it acts as a broker to facilitate trade between buyers and sellers, by bringing them into contact with one another. In any transaction, the seller can set the opening price, a (secret) reserve price (if they wish), and the duration of the auction (between three and ten days). Bidders submit bids, which can be raised at any time within the auction period. Because the duration is fixed, many bidders post their bids during the last few hours or minutes of the auction period. When the auction closes and a winning bid is selected, the buyer and seller make contact. At this point the buyer pays for the goods via a PayPal account (an online payments system purchased by eBay in 2002), and the seller ships the goods to the buyer.

Information concerning the reliability of buyers and sellers can be obtained from published data concerning their previous trading history. Under this system, buyers and sellers rate the experience of trading with each other (following a transaction) as positive (+1), negative (-1), or neutral (0). Cumulative ratings are displayed for each trader. A rating exceeding +10 receives a star, while a rating below -4 leads to a trader being banned from further use of eBay. For the use of its services, eBay charges sellers a listing fee and a commission based on the value of the transaction.

Several academic economists have investigated the behaviour of buyers and sellers in auctions. Particular interest has focused on the impact of asymmetric information, reputation effects and the degree of trust between buyers and sellers on traders’ behaviour. This literature is surveyed by Bajari and Hortacsu (2004). For example, Lucking-Reiley et al. (2007) analyse the determinants of the prices of 461 collectable coins (Indian Head pennies) that were traded on eBay during July and August 1999. Data were collected on the age and grade of the coin; the minimum submitted bid; the final submitted bid; the number of bids; the reserve price (if any); the seller’s rating; the duration of the auction; and whether or not the auction period included a weekend. Results from the analysis included the following:

■ Positive (negative) seller ratings lead to higher (lower) prices. Negative ratings have more impact on price than positive ratings.

■ Longer auctions fetch higher prices.

■ Reserve prices fetch higher prices (especially when only one bidder participates).

Tags: academicwriting, assignment, assignmentday, assignmentdue, assignmenthelp, assignmenthelper, assignmenthelpers, assignments, assignmentsdue, assignmentssuck, assignmentstress, assignmenttime, assignmentwriting, college, dissertation, essay, essayhelp, essaywriting, essaywritingservice, homework, homeworkhelp, researchpaper, student, studentlife, students, thesis, thesiswriting, university, universityassignment, writing