Analyzing the Impact of Public Buyer-Seller Engagement During Online Auctions

Abstract

Seller and product authentication problems are inherent in online markets, particularly in the time-constrained setting of online auctions. While trust-building mechanisms such as seller feedback systems can mitigate these problems, they are based on past transactions and other users’ experiences. They provide useful information about a transaction only after it is completed, and have only indirect effects on buyers’ trust in sellers because they are not based on direct interactions between a trustor (buyer) and a trustee (seller). On the other hand, direct engagement between transacting parties during an online auction, particularly open and public engagement, can have a direct effect on buyers’ trust, thereby reducing information asymmetry between buyers and sellers. In this paper, we analyze how public buyer-seller engagement via Q&A (question and answer) during online auctions impacts bidding behavior. We analyze auction data from a large auction platform that supports public Q&A between buyers and sellers and show that the seller’s engagement with buyers during an auction can significantly impact the behavior of both, buyers who ask questions as well as lurkers who passively observe the engagement (spillover effect). Our analysis also shows that the impact of the seller’s engagement depends on features such as product type and seller reputation. A key insight from our study is that the impact of seller engagement on bidding behavior is moderated by seller feedback ratings, which indicates that trust-building mechanisms in online markets interact in their effects on buyers’ decision-making. As sellers gain positive (negative) feedback, the impact of buyer-seller engagement on bidding behavior increases (decreases); furthermore, the cost of an additional negative feedback rating outweighs the benefit of a positive one. Overall, this study provides valuable insights for online auction platforms and their stakeholders.

Keywords: Online Auction, public Q&A, Seller engagement, Seller reputation, Trust-building, Fixed-effects estimation

JEL Classification: C01,C22,C23, M15, M31