How Much Is a Dollar Worth? Tipping versus Equilibrium Coexistence on Competing Online Auction Sites

Abstract

The equilibrium model of Ellison, Fudenberg, and Möbius (2004) predicts that, if two competing auction sites are coexisting, then seller revenues and buyer-seller ratios on each site should be approximately equal. We examine these hypotheses using …eld experiments selling identical items on the eBay and Yahoo auction sites. We …nd evidence that is inconsistent with the equilibrium hypotheses, and suggest that the eBay-Yahoo market is in the process of tipping. Robust statistical tests indicate that revenues on eBay are consistently 20 to 70 percent higher than those on Yahoo. In addition, eBay auctions attract approximately two additional buyers per seller than equivalent Yahoo auctions. We also vary the Yahoo ending rule from a hard close to soft close but …nd no statistically or economically signi…cant changes in revenue or numbers of bidders. Moreover, the magnitude of the revenue and buyer-seller ratio disparities remain inconsistent with the notion of equilibrium coexistence even after accounting for various di¤erentiators between the sites.Keywords: Tipping, equilibrium coexistence, …eld experiments, auctions JEL numbers: C93, D44, L86We thank Jim Wang for excellent assistance with the online auctions. The second author gratefully acknowledges the …nancial support of the National Science Foundation. We are indebted to Maximilian Au¤hammer, Guido Imbens, Dan Levin, and Michael Schwarz for helpful conversations. We also thank seminar participants at Harvard and MIT for their comments. (2004) predicts that, if two competing auction sites are coexisting, then seller revenues and buyer-seller ratios on each site should be approximately equal. We examine these hypotheses using …eld experiments selling identical items on the eBay and Yahoo auction sites. We …nd evidence that is inconsistent with the equilibrium hypotheses, and suggest that the eBay-Yahoo market is in the process of tipping. Robust statistical tests indicate that revenues on eBay are consistently 20 to 70 percent higher than those on Yahoo. In addition, eBay auctions attract approximately two additional buyers per seller than equivalent Yahoo auctions. We also vary the Yahoo ending rule from a hard close to soft close but …nd no statistically or economically signi…cant changes in revenue or numbers of bidders. Moreover, the magnitude of the revenue and buyer-seller ratio disparities remain inconsistent with the notion of equilibrium coexistence even after accounting for various di¤erentiators between the sites.

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