Consumer Surplus in Online Auctions

48 Pages Posted: 10 Nov 2005

See all articles by Ravi Bapna

Ravi Bapna

Indian School of Business

Wolfgang Jank

University of Maryland - Decision and Information Technologies Department

Galit Shmueli

Institute of Service Science, National Tsing Hua University, Taiwan

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2005

Abstract

Despite the growing research interest in Internet auctions, particularly those on eBay, little is known about quantifiable consumer surplus levels in such mechanisms. Using an ongoing novel field experiment that involves real bidders participating in real auctions, and voting with real dollars, we collect and examine a unique dataset to empirically quantify and understand determinants of consumer surplus in eBay auctions. The estimation procedure for private value auctions relies mainly on knowing the highest bid, which is not disclosed by eBay, but is available to us from our experiment. For common value auctions, where bidders bid strategically to avoid winner's curse, we develop an estimation procedure that infers the bidders' signals from their bids, and subsequently infers the item's common value and resulting surplus, from the signals. Our analysis, based on a sample of 4514 eBay auctions, indicates that the average surplus level per eBay auction is $15.59, which roughly translates to $6.5 billion in accrued consumer surplus for the year 2003 alone. We find that consumer surplus is significantly different across currencies and item categories, negatively influenced by seller experience, auction duration and competition, and positively influenced by bidder experience, bidder aggressiveness and item price.

Keywords: eBay, sniping, highest bid, Weibull distribution

Suggested Citation

Bapna, Ravi and Jank, Wolfgang and Shmueli, Galit, Consumer Surplus in Online Auctions (November 1, 2005). Available at SSRN: https://ssrn.com/abstract=840264 or http://dx.doi.org/10.2139/ssrn.840264

Ravi Bapna (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India
+91 40 23187156 (Phone)

Wolfgang Jank

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4300 Van Munching Hall
College Park, MD 20742
United States
301-405-1118 (Phone)

HOME PAGE: http://www.smith.umd.edu/faculty/wjank/

Galit Shmueli

Institute of Service Science, National Tsing Hua University, Taiwan ( email )

Hsinchu, 30013
Taiwan

HOME PAGE: http://www.iss.nthu.edu.tw

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