Product Uncertainty in Online Markets: Conceptualization, Antecedents, and Consequences

42 Pages Posted: 24 Feb 2010

See all articles by Angelika Dimoka

Angelika Dimoka

Temple University - Department of Marketing and Supply Chain Management; Center for Neural Decision Making, Temple University

Paul A. Pavlou

Temple University - Department of Management Information Systems; Temple University - Department of Strategic Management

Date Written: January 22, 2010

Abstract

The Internet interface poses a difficulty for buyers in evaluating products online, particularly experience goods, such as used cars. This increases product uncertainty, the buyer’s estimate of the variance in product quality. However, the literature has ignored product uncertainty and focused on seller uncertainty. To address this void, this study examines the nature, effects, and antecedents of product uncertainty in online auctions for used cars.

Extending the literature on markets with asymmetric information, we first conceptualize the construct of product uncertainty and show that is distinct from, yet related to, seller uncertainty. Second, we propose product uncertainty to negatively affect two key success outcomes of online marketplaces - price premiums and transaction activity - beyond seller uncertainty. Third, we propose a set of product information signals to mitigate product uncertainty: (1) the diagnosticity of online product descriptions (textual, visual, multimedia), (2) the level of auction posted prices (reserve, starting, buy-it-now), (3) the existence of third-party product certifications (inspection, history report, warranty), plus intrinsic product characteristics (book value, usage).

The proposed model is supported by a unique dataset comprised of a combination of primary (survey) data drawn from 331 buyers who bid upon a used car on eBay Motors, matched with secondary transaction data from the corresponding online auctions. The results distinguish between product and seller uncertainty, show that product uncertainty has a stronger effect on price premiums and transaction activity than seller uncertainty, identify the most influential product information signals, and validate the mediating role of product uncertainty. The study contributes to and has implications for understanding the nature and role of product uncertainty, and identifying how product uncertainty can be mitigated in online environments with the aid of IT.

Keywords: Product Uncertainty, Product Information Signals, Price Premiums, Online Auction Marketplaces, eBay Motors

Suggested Citation

Dimoka, Angelika and Pavlou, Paul A., Product Uncertainty in Online Markets: Conceptualization, Antecedents, and Consequences (January 22, 2010). Available at SSRN: https://ssrn.com/abstract=1557862 or http://dx.doi.org/10.2139/ssrn.1557862

Angelika Dimoka

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

Center for Neural Decision Making, Temple University ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://www.fox.temple.edu/minisites/neural/index.html

Paul A. Pavlou (Contact Author)

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

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