Price Formation and its Dynamics in Online Auctions

35 Pages Posted: 18 May 2006

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

Date Written: 2004

Abstract

This research uses functional data modelling to study the price formation process of online auctions. It conceptualizes the price curve and its first and second derivatives(velocity and acceleration respectively) as the primary objects of interest. Together these three functional objects permit us to talk about the energy of an auction, and how the influence of its determinants vary as a function of auction time. For instance, we find that the incremental impact of an additional bidder's arrival on the rate of price increase is smaller towards the end of the auction. Our analysis suggests that "stakes" do matter and that the rate of price increase is faster for more expensive items, especially at the start and the end of an auction. It is observed that higher seller ratings (which correlate with experience) positively influence the price dynamics, but the effect is weaker in auctions with longer durations. Interestingly, we find that the price level is negatively related to auction duration when the seller has low rating whereas in auctions with high-rated sellers longer auctions achieve higher price levels throughout the auction, and especially at the start and end. Our methodological contributions include the introduction of functional data analysis as a viable toolkit for exploring the structural characteristics of electronic markets.

Keywords: Functional regression analysis, data smoothing, eBay, online auction, auction dynamics, electronic commerce

Suggested Citation

Bapna, Ravi and Jank, Wolfgang and Shmueli, Galit, Price Formation and its Dynamics in Online Auctions (2004). Robert H. Smith School Research Paper No. RHS-06-003. Available at SSRN: https://ssrn.com/abstract=902887 or http://dx.doi.org/10.2139/ssrn.902887

Ravi Bapna

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 (Contact Author)

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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