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Seller strategies on eBay: Does size matter?

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  • Anderson, Steven
  • Friedman, Daniel
  • Milam, Garrett
  • Singh, Nirvikar

Abstract

We examine seller strategies in 1177 Internet auctions on eBay, to understand the diversity of strategies used, and their impacts. Dimensions of strategic choice include the use of a ‘Buy it Now’ option, the level of the starting price, and the use of a secret reserve price. A major focus of our analysis is on differences across sellers with different volumes of sales. The largest volume sellers (termed “retailers”) in our sample employ uniform selling strategies, but lower volume sellers exhibit a wide variety of strategic choices. While some components of sellers’ strategies appear important in raising seller revenue, including starting the auction with a ‘Buy it Now’ offer, the overall impact of seller strategy choices on the outcome appears to be quite small. We interpret this as evidence for the competitiveness of the online auction market for frequently traded items with conventional retail alternatives. An exception is provided by the use of a secret reserve price, which raises the winning bid conditional on a sale, but reduces the probability of a sale. Depending on sellers’ risk aversion and impatience, this may also be an efficient outcome.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4324.

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Date of creation: May 2007
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Handle: RePEc:pra:mprapa:4324

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Keywords: Internet auctions; posted prices; market institutions;

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References

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  1. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 454-474, June.
  2. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2003. "An Experimental Analysis of Ending Rules in Internet Auctions," CESifo Working Paper Series 987, CESifo Group Munich.
  3. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer, Springer, vol. 9(2), pages 79-101, June.
  4. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 2000. "Pennies from eBay: the Determinants of Price in Online Auctions," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1736, Econometric Society.
  5. Michael Peters & Sergei Severinov, 2001. "Internet Auctions with Many Traders," Working Papers, University of Toronto, Department of Economics peters-01-01, University of Toronto, Department of Economics.
  6. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1063-1080, December.
  7. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Buy it now: A hybrid market institution," MPRA Paper 4322, University Library of Munich, Germany.
  8. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, Elsevier, vol. 55(2), pages 297-320, May.
  9. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  10. Haruvy, Ernan & Popkowski Leszczyc, Peter T. L., 2010. "Internet Auctions," Foundations and Trends(R) in Marketing, now publishers, now publishers, vol. 4(1), pages 1-75, March.
  11. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(1), pages 191-212, June.
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Cited by:
  1. Shunda, Nicholas, 2009. "Auctions with a buy price: The case of reference-dependent preferences," Games and Economic Behavior, Elsevier, Elsevier, vol. 67(2), pages 645-664, November.
  2. Cassar, Alessandra & Friedman, Daniel & Schneider, Patricia Higino, 2009. "Cheating in markets: A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 72(1), pages 240-259, October.
  3. Sha Luo, 2009. "Price Dispersion in the Online Auction Markets," EERI Research Paper Series EERI_RP_2009_07, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Buy it now: A hybrid market institution," MPRA Paper 4322, University Library of Munich, Germany.

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