Adverse Selection in Electronic Markets: Evidence from Online Stamp Auctions

20 Pages Posted: 21 Dec 2004

See all articles by Sanjeev Dewan

Sanjeev Dewan

University of California, Irvine - Paul Merage School of Business

Vernon Hsu

George Mason University - School of Business

Abstract

We analyze adverse selection costs in online stamp auctions, based on a comparison of prices on eBay with those of matched stamps at a specialty stamps auction site in the U.S., Michael Rogers, Inc. (MR), which we know has low quality uncertainty. We find that buyer prices are 10-15% lower on eBay as compared to MR, and the price difference, increases with the value of the stamps. Consistent with this adverse selection discount we find that the seller reputation mechanism on eBay has an economically modest, although statistically significant, effect on auction price and probability of sale.

Suggested Citation

Dewan, Sanjeev and Hsu, Vernon, Adverse Selection in Electronic Markets: Evidence from Online Stamp Auctions. Available at SSRN: https://ssrn.com/abstract=629958

Sanjeev Dewan (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States

Vernon Hsu

George Mason University - School of Business ( email )

Fairfax, VA 22030
United States

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