Consumer Surplus in Online Auctions

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 median surplus level per eBay auction is $3.61, which roughly translates to $1.5 billion in accrued consumer surplus for the year 2003 alone. On a percentage basis, consumers are capturing at least 18.3% of the total surplus generated in eBay auctions. 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.

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

“…Our analysis reveals that consumer surplus is enhanced by as much as $97.92 million per year because of the availability of the electronic market. This finding thus contributes to the literature on the welfare benefits of the Internet (Brynjolfsson et al 2003, Ghose et al 2006, Bapna et al 2008, Forman et al 2009). Consistent with an emerging stream of work (Granados et al 2009), we find that online markets exhibit higher own price elasticity, compared to that of offline markets.…”

Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact

“…This technique has been applied to measure welfare gains for new goods ranging from Honeynut Cheerios (Hausman 1997b) to increased product variety on the Internet (Brynjolfsson et al 2003). Related techniques have also been used to analyze the welfare impact from online auction sites (Bapna et al 2005).…”

The Happiness Premium: The Impact of Emotion on Individuals’ Willingness to Pay in Online Auctions

“…Research has found that product specialization has explanatory power for reverse auctions. However, research has also found that non-contractible elements (including non-contractibility quality, supplier technological investments, information exchange, information diffusion, responsiveness, trust, and flexibility, of inter-organizational relationships) also have great explanatory power for reverse auctions (Ba, Whinston, & Zhang, 2003;Bapna, Jank, & Shmueli, 2008;Ho, Bodoff, & Tam, 2011;Li, Hess, & Valacich, 2006Lim, Sia, Lee, & Benbasat, 2006;Mithas, Jones, & Mitchell, 2008;Webster & Martocchio, 1992). Research has also found implementing information feedback to an auction system to increase the amount of successful trading on the auction websites because it helps build trust, which is critical in electronic auctions (Adomavicius, Curley, Gupta, & Sanyal, 2013;Adomavicius & Gupta, 2005;Ba et al, 2003;Bapna et al, 2003).…”